The Relationship between Accounting Conservatism and Earning Management in Emerging Markets: The Moderating Role of Size

The purpose of this study is to examine the effect of accounting conservatism on earnings management and investigate the effect of firm size as a moderator variable on the relationship between accounting conservatism on earnings management (which has not been considered in the literature before). The study employs data drawn from 369 nonfinancial firms with 3320 observations from seven emerging markets (Saudi Arabia, Kuwait, Qatar, UAE, Oman, Bahrain, and Jordan) for the period between 2012 and 2021. The findings reveal that increasing conservatism leads to an increase in the opportunity for earning management, but this relationship will differ in the case of large companies, since with large companies, applying accounting conservatism reduces inefficiency by reducing the incentive to manipulate profits. Also, the study examined performance and financial leverage as control variables and found a positive and significant relationship with earning management, which indicates that the effects of these variables are controlled on earning management.