| Abstract |
Despite a number of legislative measures such as Sarbanes Oxley Act, despite the negative past experience of the executives of the companies that have been cooking books, despite adverse effect on the companys operations and reputation that often led to bankruptcies, investors still continue to face manipulation of financial numbers, which companies do to cover losses, increase profits, and to meet and/or beat the analysts expectations.
Although, there was not registered a single case of accounting frauds or implausible financial results. However, it is very likely to find misstatements in financials of the Baltic companies annual reports. The growing number of investors in the Baltic companies, and need for the thorough analysis of financial statements in investment decision-making of the Baltic companies determine the topicality of the earnings quality.
Masters Thesis object is the companies listed in the NASDAQ OMX Baltic Main List.
Masters Thesis research subject is assessment of earnings quality of the companies in the NASDAQ OMX Baltic Main List.
Masters Thesis hypothesis is: it is possible to choose appropriate earnings quality models for assessing earnings quality of the companies enlisted in the NASDAQ OMX Baltic Main List.
Therefore, the goal of Masters Thesis is to explore existing earnings quality models; to develop an earnings quality model that could be used by market participants and investors to evaluate the earnings quality of the companies listed in the NASDAQ OMX Baltic Main List while taking investment decisions.
Masters Thesis scientific contribution includes the following:
Development of the earnings quality concept, and conducting lexicographical analysis in order to get insight about earnings quality;
Two models of earnings manipulation was developed on basis of the Beneish model that can be used to measure earnings quality of the companies;
Assessment and comparison of the earnings quality of the Baltic companies based on the authors developed methodology.
Period of research the practical part of the research covered the period from 2008 till 2012, while the theoretical part carried out the period since the last century.
Masters Thesis limitations:
To evaluate earnings quality of the companies enlisted in the NASDAQ OMX Baltic Main List were used only two tools, operating cash flow and net income comparison, and accruals level.
The banks were systematically excluded from the research as their reporting standards and assets structure are significantly differ from the common balance sheets;
The earnings quality of the Baltic companies was assessed for the period from 2008 until 2012.
1st Chapter of Masters Thesis describes the nature of earnings quality, and their role in the assessment of the companys financial performance, provides lexicographical analysis of the earnings quality as a term, describes main determinants and qualitative attributes, and analyzes consequences of earnings quality; defines the link between earnings and accruals quality, and their effect on the companys market performance.
In the 2nd Chapter of Masters Thesis, the author analyzes main concepts of earnings management, grouped and summarized main earnings manipulation techniques and provides the most essential red flags of detecting earnings manipulation, explores the nature of incentives for earnings management, defines tools and models for assessment of earnings quality of the Baltic companies, and develops research methodology, forms two models on the basis of the Beneish M Score model to detect earnings manipulation in the Baltic companies in order to determine the quality earnings of the tested companies.
In the 3rd Chapter of Masters Thesis represents the results obtained by applying the tools and models, and determine whether or not developed models are applicable to measure earnings quality of the Baltic companies. |
