Macroeconomic Growth Determinants and Earnings‎Management: Investigating The Mediating Role of Corporate Governance and Accounting Quality

  • Authors

    • yujie liu Yujie Liu, Kyrgyz State University named after Ishenaly Arabaev, Bishkek, Bishkek,720000, the Kyrgyz ‎Republic
    • Nelli Akylbekova Nelli Akylbekova, Kyrgyz State University named after Ishenaly Arabaev Bishkek, Bishkek,720000, the ‎Kyrgyz Republic
    • Kalybek Abdykadyrov Kalybek Abdykadyrov,Kyrgyz State University named after Ishenaly Arabaev Bishkek,Bishkek, 720000,the Kyrgyz Republic
    https://doi.org/10.14419/339m0703

    Received date: September 8, 2025

    Accepted date: October 21, 2025

    Published date: November 6, 2025

  • Macroeconomic Determinants; Earnings Management; Corporate Governance; Accounting Quality; Panel Data; Structural Equation Modeling ‎‎(SEM); System-GMM.

  • Abstract

    Earnings management is a long-term problem in the corporate governance of the world, and about 30-40 percent of publicly traded companies are involved in some types of earnings manipulation every year. Even though the role that macroeconomic variables play in earnings ‎management has been explored in past literature, the mediating roles that corporate governance and accounting quality mechanisms play in ‎this context have been rather underrepresented. This current research investigates the existence of the relationship between the determinants ‎of macroeconomic growth and earnings management in the emerging market economies and the mediation of corporate governance and ‎accounting quality. The study provides a variety of econometric methods, such as Structural Equation Modeling (SEM), System-GMM ‎estimation, and Baron Kenny mediation analysis using a comprehensive multinational panel dataset, which consists of 5,000 companies in ‎‎40 countries from 2010-2022. The measure of earnings management is through discretionary accruals through the Modified Jones Model, and ‎macroeconomic determinants include GDP growth, development of financial markets, and inflation rates. There is strong empirical evidence ‎in support of all hypotheses across model specifications. GDP growth and development of financial markets have a major negative impact ‎on earnings management, as well as inflation demonstrates a positive correlation with manipulation. Corporate governance and accounting quality become important mediators with total indirect effects of GDP growth and financial market development of -0.086 and -0.099, ‎respectively, 49 and 59 percent of the total effects. The SEM model fits very well, as shown by RMSEA of 0.067 and CFI of 0.962. The ‎level of macroeconomic stability has a significant impact on earnings management in governance and accounting quality channels. Corporate ‎governance describes at most 50 0.25% and accounting quality at most 35 0.25% of a macroeconomic influence on earnings manipulation, ‎thus supporting coordinated policy responses to emerging markets‎.

  • References

    1. Rigamonti A P, Stacchezzini A, Pelloni L & Devalle F (2024), Macroeconomic uncertainty and earnings management: evidence from commodity firms. Review of Quantitative Finance and Accounting 62(3), 1615–1649. https://doi.org/10.1007/s11156-024-01246-8.
    2. Viana D B C Jr, Lourenço I, Black E L & Martins O S (2023), Macroeconomic instability, institutions, and earnings management: an analysis in de-veloped and emerging market countries. Journal of International Accounting, Auditing & Taxation 51, 100544. https://doi.org/10.1016/j.intaccaudtax.2023.100544.
    3. El Ghoul S, Guedhami O, Kim Y & Yoon H J (2021), Policy uncertainty and accounting quality. The Accounting Review 96(4), 233–260. https://doi.org/10.2308/TAR-2018-0057
    4. Bermpei T, Kalyvas A N, Neri L & Russo A (2022), Does economic policy uncertainty matter for financial reporting quality? Evidence from the United States. Review of Quantitative Finance and Accounting 58(2), 795–845. https://doi.org/10.1007/s11156-021-01010-2
    5. Kahloul I, Grira J & Hlel K (2023), The trilogy of economic policy uncertainty, earnings management and firm performance: empirical evidence from France. Journal of Economics and Finance 47, 184–206. https://doi.org/10.1007/s12197-022-09605-8.
    6. Chauhan Y & Jaiswall M (2023), Economic policy uncertainty and incentive to smooth earnings. International Review of Economics & Finance 85, 93–106. https://doi.org/10.1016/j.iref.2023.01.014.
    7. Chen X, Cheng Q, Hao Y & Liu Q (2020), GDP growth incentives and earnings management: evidence from China. Review of Accounting Stud-ies 25(3), 1002–1039. https://doi.org/10.1007/s11142-020-09547-8
    8. Lassoued N & Khanchel I (2021), Earnings management in emerging markets: the COVID-19 and family ownership effect. Emerging Markets Fi-nance & Trade 57(1), 66–79. https://doi.org/10.1080/1540496X.2020.1855138
    9. Melgarejo M (2019), The impact of corporate governance on earnings quality: evidence from Peru. Journal of Accounting in Emerging Economies 9(4), 527–541. https://doi.org/10.1108/JAEE-12-2018-0138.
    10. Shira R K (2025), Corporate governance, competition and earnings management: evidence from Asian emerging economies. Journal of Financial Reporting & Accounting 23(1), 218–241. https://doi.org/10.1108/JFRA-07-2022-0270
    11. Intara P, Sangwichitr K & Sattayarak O (2024), Earnings quality and firm value: does corporate governance matter? Cogent Business & Manage-ment 11(1), Article 2386158. https://doi.org/10.1080/23311975.2024.2386158.
    12. Rahman H U, Ali A, Arian A & Sands J (2024), Does corporate governance and earning quality mitigate idiosyncratic risk? Evidence from an emerging economy. Journal of Risk and Financial Management 17(8), Article 362. https://doi.org/10.3390/jrfm17080362.
    13. Ali M J, Biswas P K, Chapple L & Kumarasinghe S (2024), Institutional ownership and earnings quality: evidence from China. Pacific-Basin Fi-nance Journal 84, Article 102275. https://doi.org/10.1016/j.pacfin.2024.102275.
    14. Orazalin N & Akhmetzhanov R (2020), Board gender diversity, corporate governance, and earnings management: evidence from an emerging mar-ket. Gender in Management 35(1), 37–60. https://doi.org/10.1108/GM-03-2018-0027.
    15. Amara N et al. (2025), The impact of audit quality and female audit committee characteristics on earnings management: evidence from the UK. Journal of Risk and Financial Management 18(3), Article 136. https://doi.org/10.3390/jrfm18030136
    16. Amin Q A & Cumming D (2021), Blockholders and real earnings management – the emerging markets context. Journal of International Financial Markets, Institutions & Money 75, Article 101434. https://doi.org/10.1016/j.intfin.2021.101434
    17. Bilal M, Chen S & Komal B (2018), Audit committee financial expertise and earnings quality: a meta-analysis. Journal of Business Research 84, 253–270. https://doi.org/10.1016/j.jbusres.2017.11.048
    18. Gokhale M & Pillai D (2024), Firm-level and country-level determinants of earnings management in emerging economies: a systematic framework-based review. Future Business Journal 10, Article 72. https://doi.org/10.1186/s43093-024-00361-1
    19. Hong N T H, Nguyen T A, Hoang T V & Minh D N (2023), Corporate governance, external financing, and earnings management: new evidence from an emerging market. Future Business Journal 9, Article 27. https://doi.org/10.1186/s43093-023-00206-3.
    20. Soeprajitno R R W N, Na’im A & Rakhman F (2024), The effects of government policies during the COVID-19 pandemic on earnings manage-ment. SSRN Electronic Journal, July 2024. https://doi.org/10.2139/ssrn.4899327.
    21. Jayaraman S, Shin H H & Zimmerman R M (2021), Macroeconomic uncertainty and firms’ earnings management. Review of Accounting Studies 26(3), 799–837.
    22. Yoon H, Kim J & Woodruff J (2021), Economic policy uncertainty and earnings smoothing. Journal of Accounting and Public Policy 40(2). https://doi.org/10.1016/j.jaccpubpol.2020.106734.
    23. Habib S & Hasan A (2019), Economic policy uncertainty and the use of discretionary accruals: international evidence. Journal of Contemporary Accounting & Economics 15(3). https://doi.org/10.1016/j.jcae.2019.100178.
    24. Attig B, Cleary S, El Ghoul S & Guedhami O (2020), Institutional investment horizons and the amplification of macroeconomic shocks through earnings management. Journal of Banking & Finance 118, 105879.
    25. Lassoued M G (2021), Do economic crises affect earnings management? Evidence from the COVID-19 pandemic. Journal of Financial Reporting & Accounting 19(4), 613–635.
    26. Ding G, Hu X, Li Y & Wu Z (2020), Macroeconomic conditions and earnings management: evidence from listed companies in China. Applied Economics 52(56), 6099–6111. https://doi.org/10.1080/00036846.2020.1781776.
    27. Pavan G (2019), Business cycles and earnings management: international evidence. International Review of Financial Analysis 63, 321–332. https://doi.org/10.1016/j.irfa.2018.12.006
    28. Siregar A K & Utama S (2019), The impact of economic growth and inflation on earnings management: evidence from ASEAN countries. Journal of Economics, Business & Management 7(1), 21–26. https://doi.org/10.18178/joebm.2019.7.1.577.
    29. Kalyani A & Abarna P S K (2021), Economic policy uncertainty and accrual-based earnings management in India. Managerial Finance 47(9), 1361–1379.
    30. Ahmed F & Azim M S (2021), The effect of macroeconomic factors on real earnings management: evidence from an emerging economy. Interna-tional Journal of Emerging Markets 16(8), 1665–1687.
    31. Wu F, Li X & Sha S (2020), Economic growth targets and earnings management: evidence from Chinese local governments. Journal of Corporate Finance 64, 101676.
    32. Su Y (2019), Monetary policy, economic fluctuations, and corporate earnings management. International Review of Economics & Finance 59, 191–204. https://doi.org/10.1016/j.iref.2018.09.002.
    33. Fakile O A, Adegboyegun M & Adegboye A (2019), Oil price changes and earnings management in oil-producing economies. International Journal of Energy Economics & Policy 9(6), 127–135.
    34. Lassoued Z, Abdelaziz B & Sfaxi J A (2020), The effect of GDP growth and inflation on earnings management: evidence from frontier markets. Journal of Accounting in Emerging Economies 10(4), 545–566. https://doi.org/10.1108/JAEE-12-2018-0136.
    35. Goto G, Sasaki Y & Shimizu Y (2022), Economic crises and accrual-based earnings management: international evidence from the COVID-19 shock. Finance Research Letters 46, 102391. https://doi.org/10.1016/j.frl.2021.102391.
    36. Ali S, Liu Q & Su Y (2021), Corporate governance and earnings management: a bibliometric analysis and literature review. International Journal of Disclosure & Governance 18(4), 356–373.
    37. Alzoubi K H H (2018), Ownership structure and earnings management: evidence from Jordan. International Journal of Accounting & Information Management 26(1), 187–205.
    38. Ismail N, Kamarudin A A, LaFond M & Zijl D D (2019), Female directors and earnings quality in Malaysian firms. Pacific-Basin Finance Journal 56, 266–288. https://doi.org/10.1016/j.pacfin.2019.06.013.
    39. Masri H U & Othman N (2017), Audit committee expertise and earnings management: the moderating effect of internal audit function. Managerial Auditing Journal 32(7), 757–778.
    40. Dang L H, Brown J L & Nugent S B (2021), Earnings quality and firm value: does corporate governance matter in an emerging market? Cogent Economics & Finance 9(1), Article 1976018.
    41. Al Fakhri A, Hossain M & Momin M N N (2020), Does corporate governance affect earnings management in transitional economies? International Journal of Accounting & Information Management 28(4), 759–784. https://doi.org/10.1108/IJAIM-11-2019-0135.
    42. Jaggi P S, Yan L & Yung J Y Y (2018), Managerial ability, audit committee effectiveness, and audit quality: impacts on earnings quality before and after SOX. Review of Accounting & Finance 17(3), 315–338.
    43. Shahid F M & Abbas A A (2020), Earnings quality as a link between corporate governance and firm performance. International Journal of Business Governance & Ethics 14(1), 1–27.
    44. Lin C J, Zeng Z, Zou X & Wang X (2018), Do larger boards improve earnings quality? Evidence from supervisory boards in China. International Journal of Accounting 53(3), 224–238. https://doi.org/10.1016/j.intacc.2018.07.002.
    45. Jiao Y C, Kharashfeh S M & Šević M (2021), Audit quality, corporate governance and earnings management: evidence from MENA countries. Journal of Accounting in Emerging Economies 11(4), 552–580.
    46. Rashid M K (2018), Corporate governance, political connections and earnings management in Pakistan. International Journal of Accounting & In-formation Management 26(4), 607–623.
    47. Liu B, Song Y & Yang Z (2019), Financial expertise of independent directors and earnings management: evidence from China. Journal of Interna-tional Accounting, Auditing & Taxation 35, 100358. https://doi.org/10.1016/j.intaccaudtax.2019.05.005.
    48. Dimitropoulos E V & Asteriou A (2018), Corporate governance, board composition and earnings management in the banking sector of an emerging market. Review of Quantitative Finance & Accounting 51(4), 1131–1160.
    49. Chu P K G, Razak A H A & Saad N A S (2021), Improving corporate governance to enhance earnings quality: evidence from Malaysia. Asian Academy of Management Journal of Accounting & Finance 17(1), 1–29. https://doi.org/10.21315/aamjaf2021.17.1.1.
    50. Hoang S, Nguyen T D & Hu A (2021), Internal corporate governance mechanisms and real earnings management: evidence from Vietnam. Interna-tional Journal of Managerial Finance 17(4), 528–547.
    51. Alghamdi D B & Wan-Hussin L Y S (2020), Corporate governance quality and the relationship between earnings management and firm perfor-mance. International Journal of Accounting & Information Management 28(3), 429–445. https://doi.org/10.1108/IJAIM-12-2018-0146.
    52. Samarakoon S M R K, Mishra R K, Pradhan R P, Jayakumar M & Bagchi T P (2025), Annual report readability, ESG disclosure, and risk: the me-diating role of corporate governance and earnings management. International Journal of Disclosure & Governance 22(4), 678–705. https://doi.org/10.1057/s41310-024-00272-1
    53. Al-Daoud D A, Ismail M I & Lode M (2018), Board structure and earnings management: assessing the mediating role of performance. Cogent Business & Management 5(1), Article 1429346. https://doi.org/10.1080/23311975.2018.1429346.
    54. Al-Haddad A & Whittington A (2019), Earnings management and firm value: does governance quality mitigate the relationship? Journal of Ac-counting & Organizational Change 15(2), 265–281.
    55. Aboud A S & Diab A K (2019), Corporate governance and stock price crash risk: earnings management as a mediating variable. Journal of Applied Accounting Research 20(4), 441–458. https://doi.org/10.1108/JAAR-01-2018-0009.
    56. Al-Sraheen D A & Al-Daoud K A (2018), Independent directors, family ownership and earnings management: evidence from an emerging market. Ekonomski Pregled 69(6), 638–654. https://doi.org/10.32910/ep.69.6.2
    57. Lee C F & Wang D (2020), Corporate governance as a moderating factor in the earnings management–firm value relationship. International Review of Economics & Finance 69, 613–624. https://doi.org/10.1016/j.iref.2020.06.023
    58. Zalata P, Tauringana L, Tingbani N & Shah M A (2019), Female CEOs and core earnings quality: resolving the ethics versus risk-aversion puzzle. Journal of Business Ethics 160(2), 515–536. https://doi.org/10.1007/s10551-018-3918-y.
    59. Obigbemi R S, Omolehinwa J A, Mukoro O A, Ben-Caleb O & Olokoyo A (2016 online 2017), Earnings management and board effectiveness: an analysis of settings with concentrated ownership. International Journal of Emerging Markets 11(4), 550–574.
    60. Al-Hadi H, Hasan S M & Habib M (2022), Financial leverage, financial stability and earnings management: does board gender diversity play a moderating role? Asian Journal of Accounting Research 7(2), 202–218.
    61. Shahzad M, Rehman M I & Sajjad N Z (2021), CEO power and earnings management: the mediating role of audit quality and board effectiveness. Journal of Risk & Financial Management 14(11), Article 545. https://doi.org/10.3390/jrfm14110545
    62. Isidro C & Nanda R M (2021), Analyst coverage, earnings management, and corporate governance: an international study. Journal of Banking & Finance 124, 106059.
    63. Chatzoavgoustis G, Muradoglu P & Tran D D (2021), Corporate governance and earnings management in Europe: the role of regulatory quality. International Review of Financial Analysis 77, 101828. https://doi.org/10.1016/j.irfa.2021.101828.
    64. Basuony O A, Elseidi R & Mohamed N E (2020), Bank governance and cost of equity: the mediating effect of earnings quality. Journal of Finan-cial Reporting & Accounting 18(2), 277–302. https://doi.org/10.1108/JFRA-01-2019-0015.
    65. Liu Q, Torugsa E F & Arundina A (2020), Corporate governance as a mediator of CEO characteristics and sustainability performance: evidence from an emerging market. Pacific Accounting Review 32(1), 65–93.

  • Downloads

  • How to Cite

    liu, yujie, Akylbekova, . N. ., & Abdykadyrov, K. . (2025). Macroeconomic Growth Determinants and Earnings‎Management: Investigating The Mediating Role of Corporate Governance and Accounting Quality. International Journal of Accounting and Economics Studies, 12(7), 160-177. https://doi.org/10.14419/339m0703