DOES EVA INFLUENCE THE LEVEL OF EARNINGS MANAGEMENT PRACTICES?

The profit is the resulting effect of the enterprise's business activity and, at the same time, often the measure of whether the company is successful or not. The contribution deals with the issue of earnings management. It can be stated that the issue of earnings management is a modern phenomenon in recent years. The aim of the contribution is testing hypothesis about the existence of statistically significant relationship between the economic value added indicator and the level of earnings management practices within database. Data was obtained from the Amadeus database. The database contains 15,295 small and medium-sized companies operating in V4 countries. The research was focused on companies operating in NACE Rev. 2 main section: I. Accommodation and food services activities. There are several method of the earnings management measurement. The modified Jones model was chosen within the contribution. According to many authors, the model has sufficient explanatory power and it is used worldwide in many studies. The one-way ANOVA was used to test the hypothesis. Based on the results, there is a statistically significant relationship between EVA indicator and the level of the earnings management practices. Companies with higher value of EVA indicator use the earnings management practices to decrease reported profit. On the other hand, companies with lower value of EVA indicator use the earnings management practices to increase reported profit.


Introduction
Academic scientists have been dealing with the issue of earnings management practices (hereafter "EM") since at least the 1960s. In recent years, the issue of earnings management has become known not only to the academic community but also to the general public. By using the earnings management practices within the company, the level of the reported financial indicators can be questionable. The aim of the contribution is testing hypothesis about the existence of statistically significant relationship between the economic value added indicator and the level of earnings management practices within database.

Literature Review
The issue of the earnings management is reviewed mainly by foreign authors who have been dealing with its types, motives or models for its detection.
At the beginning, authors were dealt with the impact of the earnings management practices mainly on capital market. They tested the existence of the relationship between the level of the earnings management and stock prices. It is also known as the era of the mechanistic hypothesis (Ball, 1972;Kaplan & Roll 1972;Rath & Sun, 2008). Authors stated that stock prices are influenced mainly by reported financial indicators and investors do not focused on the accounting policy of the company.
Contrary to the mechanistic hypothesis, the efficient market hypothesis was based on the assumption that stock prices are influenced by all publicly known information (not only financial reports) and the impact of the choice of accounting policy on profit is one of this information (Fama, 1970;Mayer-Sommer, 1979). Schipper (1989) defined earnings management as a purposeful intervention in the external financial reporting process, with the intent of obtaining some private gain. This definition is focused on the external reporting function. It does not include managerial accounting reports or activities that influence or change GAAP. Based on the definition, earnings management is a part of the external disclosure process in various forms.
There are several methods to estimate earnings management practices within firms. Beneish (2001) compares three definitions of earnings management, as well as three methods of measuring earnings management within firms, namely aggregate accruals, specific accruals and discontinuities in earnings distribution. Discusses evidence relating to the reasons for income-increasing earnings management, income-decreasing earnings management and specific contexts, e.g., financial institutions with regulatory constraints. Concludes that, although the evidence is limited, managers are more likely to manipulate income up rather than down; and identifies some opportunities for further research.
It can be seen that the earnings management has an important impact on the reliable of the reported financial indicators. The chosen accounting policy can influence the information within income statements, as well as balance sheets. It has impact on the stock prices, capital market, creditors, banks, investors or financial institutions (Connolly-Barker et al., 2020;Khan et al., 2020). https://doi.org/10.15405/epsbs.2021.12.04.15 Corresponding Author: Anna Siekelova Selection and peer-review under responsibility of the Organizing Committee of the conference eISSN:  147 The aim of the contribution is testing hypothesis about the existence of statistically significant relationship between the economic value added indicator and the level of earnings management practices within database.

Economic Value Added Estimation
Data were obtained from the Amadeus database. The following steps show the used search strategy.
All active companies from 2015 to 2019; Countries: Slovakia, Czech Republic, Hungary, Poland; Total assets min. 2,000,000 EUR; Operating revenues min. 100,000 EUR; Companies operating in Accommodation and food services activities; Exclusion of companies with no recent financial data for calculation; Outliers detection.
As can be seen, seven search rules were used. The database contains 15,295 small and medium-sized companies operating in V4 countries. The research was focused on companies operating in NACE Rev. 2 main section: I. Accommodation and food services activities. In the final step, outliers were detected. There are several methods for outliers detection. Based on the Interquartile range method by Turkey outlier can be defined as a value below 1 − 1.5( ) or above 3 + 1.5( ), where 3 means the third quartile and 1 means the upper quartile. Values indicated as the outlier were excluded from the database.
The aim of the contribution is to test the hypotheses if there exists a statistically significant relationship between the value of EVA and the level of the earnings management practices used in the companies. For EVA calculation, it is necessary to calculate the net operating profit after tax (NOPAT), the net operating assets (NOA), as well as the weighted average costs of capital (WACC). One of the most difficult steps in calculating the EVA indicator is to adjust the financial statements, mainly the balance sheet and profit and loss, to reflect its economic reality. Stern Stewart & Co recommends making 164 adjustments, of which only a few are in practice realized. The recommended adjustments are a trade secret of this company. Net operating assets represent the invested capital that a company needs to operate. The transformation of assets into economic data requires the following steps: total assets need to be adjusted for assets that are not related to the company's operating assets, the assets must be reduced by the amount of interest-bearing foreign capital, unusual items have to be excluded, transformation accounting assets into actual assets.
NOPAT is calculated as follow: add interest paid to the profit or loss, exclude unusual items take into account the effect of changes in equity,

= + ( − )
Where: 149 The measure of systematic risk (the volatility) of the asset relative to the market. Beta can be found online by using professor Damodaran website.

Earnings Management Estimation
Accruals are defined as a difference between net income and cash flows. The sum of total accruals contains a non-discretionary component or non-discretionary accruals (NDA), as well as a discretionary component or discretionary accruals (DA). DA corresponds to adjustments made to the cash flow, selected by managers focused on their interests in terms of earnings. NDA corresponds to adjustments made to the cash flow, resulting from the application of accounting standards in a rational manner and considering the evolving economic conditions of the company (Kliestik et al, 2020). There are two approaches to total accruals calculation. The following formula is used for total accruals calculation. It is also known as the balance sheet approach (Svabova et al, 2018, Svabova et al, 2020.
the sum of total accruals; the change in current assets; the change in current liabilities; ℎ the change in cash and cash equivalents; the change in the current maturities of long-term debt and other short-term debt included in current liabilities; depreciation and amortization expenses.
To earnings management practices calculation, the modified Jones model was used. There are also some studies that prove that the modified Jones model is the most powerful technique to indicate EM initiatives compared to the others (e.g. industry model, Healy DeAngelo model or standard Jones model) (Ayu et al., 2020;Grofcikova, 2020;Vagner et al., 2021). Based on the modified Jones model, discretionary accruals estimation is calculated using the following formulas.  150 DA calculated by the modified Jones model are also known as abnormal accruals. These accruals are used as an estimation of the EM initiatives. The higher the absolute value of DA is, the lower is the quality of reported achieved earnings.

Hypothesis Development
The hypothesis was derived from the research question: Is there a difference in the level of earnings management regarding to the level of EVA indicator?
To verified hypothesis, the one-way ANOVA test was used. Where: i-th value of interval variable; sample size; ̅ mean; the frequency of the j-th group; the number of nominal variable groups; ̅ mean j-th group.
The estimate of intergroup (MSB) and intragroup (MSE) variance can then be expressed as the ratio between the sum of squares and the corresponding number of degrees of freedom.
Possible decision criterion is based on the achieved − , which we compare with the chosen level of significance. This was determined by using statistical analysis software in Excel XLSTAT. If the − at the selected significance level = 0.05 is less than 0.05 , this means that the differences in the sample averages are too large to be random, we reject H0 and do not reject Ha, which state of the existence of a statistically significant difference in the level of earnings management regarding to the level of EVA indicator. In the next step, the level of earnings management was estimated based on the modified Jones model described above (see Table 2). The modified Jones model calculate the discretionary accruals as residuals from a regression of total accruals. The results of regression can be seen in Tables 3, 4, and 5.   In the final step, following hypothesis was tested.

H0
There is not statistically significant relationship between the level of earnings management determined by the modified Jones model and the level of EVA indicator.

Ha
There is statistically significant relationship between the level of earnings management determined by the modified Jones model and the level of EVA indicator.
The results of ANOVA test state that the differences in the sample averages are too large to be random, we reject H0 and do not reject Ha, which state of the existence of a statistically significant difference in the level of earnings management regarding to firm size.

Discussion
Literature review shows the importance of the earnings management and its implications. Reported financial indicators can be influenced by the using of the earnings management practices. The aim of the contribution was to test the hypothesis about the existence of the relationship between EVA indicator and the level of the earnings management practices using within companies.
Based on the results, there is a statistically significant relationship between EVA indicator and the level of the earnings management practices. Companies with higher value of EVA indicator use the earnings management practices to decrease reported profit. The reason can be the effort to report a low basis for calculating income tax. On the other hand, companies with lower value of EVA indicator use the earnings management practices to increase reported profit, probably in order to report a satisfactory level of profit for shareholders. We encounter this phenomenon especially in joint-stock companies.