| Summary: | Earnings management using classification shifting is interesting because many
previous researches have shown that analyst and investors give more attention to
core earnings (investors give low weight on transitory earnings). Extraordinary
items are transitory items or irregular items and their allocation require
management subjectivity, thus allowing management to exercise classification
shifting using extraordinary items to increase core earnings. This research aims to
detect earnings management through classification shifting by classifying core
expenses as extraordinary items to increase core earnings.
Samples of this research obtained with purposive sampling from all companies
listed in the capital markets of Indonesia, Malaysia, Singapore, Philippines,
Thailand, and Vietnam. Final samples are 126 observations from 2004 until 2008.
Data analysis was performed using multiple regressions.
Results show that extraordinary items this year are positively associated with
unexpected core earnings this year, but extraordinary items this year are also
positively associated with unexpected change in core earnings in the following
year. It can be concluded that this research does not provide empirical support for
classification shifting by companies listed in the capital markets of Indonesia,
Malaysia, Singapore, Philippines, Thailand, and Vietnam. An unexpected increase
in core earnings is more consistent with real economic improvements.
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