Investigation of the Effect of Earnings Management on Stock Liquidity for the Case of the Tunisian Stock Exchange

Earnings management has often been percieved as manipulating financial statements in view of mistaking stakeholders about the firm's economic performance or influencing contractual relationships founded on accounting figures. In this study, we examine the relationship between disclosed accounting information quality and stocks liquidity. To this end, we examine a sample of 220 observations of Tunisian listed companies over the 2007-2016 period. The results indicate that there is a negative relationship between accounting information quality measured by quality of accruals and stocks liquidity. Our study aimsat examining the Tunisian context and tries to determine the effect of earnings management on stocks liquidity.The relationship between liquidity(via the ask-bid spread) and accruals was examined, usingtwo modified earnings management measurementmodels: modified model of Jones (1995)and model of Kothariet al. (2005). Considering the discretionary component of accounting accruals in the relationship between a firm's stocks liquidity and its accruals is a new controversialtopic. Using a panel data qualitative approach, the obtained results point to a positive relationship between discretionary accruals and Tunisian firms'ask-bid spread (as estimated by the two measurement models). This indicates that discretionary accruals allow Tunisian investors to optimally construct their stocksportfolios. The collected results also highlighted a negative and a significant impact of transaction size and volume on firms’ask-bid spread. Indeed, earnings management allows for increasingstocks uidity when discretionary accruals are negative and reducingtheir liquidity when these accruals are positive. This is confirmed by the two discretionary accrualsmodels.

Full Text: PDF     DOI: 10.15640/ijat.v6n1a5