PREFACE

This book presents three main empirical chapters，which empirically investigate the earnings management（EM）in European private and public firms.The causes and consequences of EM activities have been studied extensively for public firms.Highlighting the importance of private firms，according to Federation of European Accountants（2016），99% of firms are registered as private firms in Europe，and considered as the backbone of the European economy.Similarly，there are around 29 million private firms in the U.S.，which account for 86% of US firms and generate almost one-half of the nation’s GDP（Asker et al.，2015）.To date，there is limited evidence about these firms’EM activities.The empirical chapters developed in the book attempt to fill this gap by not only analysing EM in private firms，but also comparing EM between private and public firms，and in so doing，to assess whether determinants of EM are similar for both types of firms.

The main aim of the first empirical chapter（Chapter 3）is to assess the degree of EM for private and public firms domiciled in Europe.In particular，this study examines the effects of International Financial Reporting Standards（IFRS）adoption on EM for both private and public firms by considering the influence of country-level factors，i.e.，legal enforcement，investor protection and tax systems.The empirical results show that private firms are more likely to engage in EM than public firms，and the effects of IFRS in lowering EM are more pronounced for public firms than for private firms.Furthermore，country-level factors and country characteristics，including legal enforcement，investor protection rules and tax rates are also important determinants of EM.Given that enhancing country-level legal enforcement systems and investor protection may reduce the use of EM further in both private and public firms，therefore，it suggests that standard-setters should consider some of the countrylevel variables to better guarantee the quality of accounting information across countries.

The second empirical chapter（Chapter 4）examines both the accrualbased EM and conservatism of private and public firms，and questions whether IFRS adoption has improved EM.It further examines whether EM differs when firms’incentives to manage earnings differ（1）due to the need to meet earnings benchmarks，（2）when obtaining external financing and（3）when the firm employs a Big Four auditor.The results suggest public firms，in general，have lower EM and report more conservatively than private firms.This result is consistent with public firms needing to provide higher quality financial information to investors and other stakeholders compared to private firms.However，public firms’higher reporting quality is mitigated or decreased when they face incentive of financing needing and no Big Four auditors employed.Finally，it observes that the accrual-based EM of public firms decreases after IFRS adoption，supporting the view that IFRS has improved the financial reporting quality of public firms.

The third empirical chapter（Chapter 5）assesses the degree of real earnings management（REM）for private and public firms domiciled in Europe.In particular，this study examines the effects of IFRS adoption on REM for both private and public firms.This chapter further examines some settings that present clear incentives to manage earnings such as（1）to meet earnings benchmarks，（2）when obtaining external financing，（3）leverage is high，and（4）when there is a big loss.The empirical results show that public firms engage in more earnings management through real operating activities，and mandatory IFRS adoption has had no significant impact on the level of REM.Furthermore，this study finds that public firms，overall，face stronger incentives to manage earnings than do private firms’managers in the four settings mentioned above.The study contributes not only to the EM literature on non-accrual earnings management，but also the current debate on IFRS adoptions.