EARNING MANAGEMENT MODELING BASED ON FINANCIAL COMMUNICATION

The present research is focused on financial communication area and aim to investigate the relationship between company’s web-based financial communications, information asymmetry and earning management. The research is aim to examine whether financial communication besides its usefulness could be act as contributory means for management in order to earning management. In other words, aim to challenges management incentives toward web-based financial information disclosure.


Financial Communication
Financial communication is consider as any activity for financial information and for promoting the financial image of the entity1 and provide the basis of institutional communication2. Signaling theory is the main theory which will be considered in present research. Signaling theory is useful for describing behavior when two parties (individuals or organizations) have access to different information3. Among the vectors of financial communication strategy, the internet must be underlined as the most important4-8. Besides signaling theory the cultivation analysis theory argues that media plays an extremely important role in how people view their world. According to Cultivation Analysis, in modern culture most people get much of their information in a mediated fashion. Spiral of Silence Theory argue that due to their enormous power, the internet communication as mass media9 have a lasting effect on public opinion.

Asymmetry Information
Signaling theory is fundamentally concerned with reducing information asymmetry between two parties10. Inter-departmental knowledge asymmetries of this kind potentially pose problems for organizations in as much as they may give rise to misunderstandings, increased communication costs, hinder coordination efforts11. Traditional knowledge gap models12 assume that one party in a communicative event has relevant and sufficient knowledge (the "have" position) whereas the other does not (the "have not" position), and that this gap tends to widen over time13.

Earning Management
Theorists in cultural studies maintain that the internet communication as a mass media represents ideologies of the dominant class in a society. Because media are controlled by corporations, the information presented to the public is necessarily influenced and framed with profit in mind. Cultural Studies theorists, therefore, are concerned with media influenced and framed with profit in mind. According to14, earnings management occurs when managers use judgment in financial reporting to alter financial reports15. Academics often use agency theory in describing earnings management behavior. More importantly, the essence of signaling theory is that the performer can purposively modify one or more of said variables for communicative purposes16.

Explain the Theoretical Connections
This section try to explain the theatrical connections between variables which are based on communication theories and also is an introduction to problem statement. Relationship between Internet Financial communication, Asymmetry information and Earning Management can be explain through Signaling Theory, Cultivation Analysis Theory, Spiral of Silence Theory and Cultural studies. Thus, based on Cultivation analysis theory mass media (internet) plays an extremely important role in how people view their world. In the following; Spiral of Silence Theory argue that due to their enormous power, the internet communication as mass media17 have a lasting effect on public opinion and then considering internet financial communication under web, signaling theory is fundamentally concerned information asymmetry between two parties (management as agent of company and stakeholders) and finally Cultural Studies theorists, are concerned with mass media influenced and framed with profit in mind which could be as a motivating factor for earning management. Financial Communication Score = ά + β1 (Market) + β2 (Size) + β3 (Sector) + β4 (Capital Structure) + β5 (Level of Debts) + β6 (Performance) + β7 (Growth) Where; Market = explanatory variables of financial disclosure on the internet Size = natural logarithm of the total assets Sector = considering statistical sample study assigned a value of 1 or 0 Capital Structure = subtracting shares held by leaders and institutional investors from the entirety of shares on the market Level of debts = ratio of long-term debts to the total assets Performance = can be measure in terms of ROA before amortization or ROE before tax Growth = the difference between the market value and the book value

Financial Communication Based on Weighted Parameters
It should be noted that unlike previous studies different weight (Wi, j) base on analysis gird of web sites18 in four different area includes; financial reports, investor information, website's ergonomy and firm profile.

Conclusion (Final Modeling)
Present research use of discretionary accruals22 in tests of earnings management model based on financial communication. Cross sectional within-industry discretionary accruals are the residuals from the Jones model. Discretionary accruals from the Jones model are estimated for each industry and year as follows: Where; TACCt = total accruals NDACCt = nondiscretionary accruals Δsale t = equals the change in the firm's sales from year t-1 to year t PPEt = equals the firm's gross property, plant, and equipment at year t ROAt = return on asset (net income over total assets) at year t ȃ1, ȃ2, ȃ3 = estimated parameter for firm i α1, α2, α3 = estimated and denoted as ȃ1, ȃ2, ȃ3 respectively εt = discretionary accruals for firm i, in year t The parameters in above equation can be estimated using either time-series data of each firm23 or cross-sectional data24. To calculate the matched Jones model discretionary accrual for firm i we subtract the Jones-model discretionary accrual of the firm with the closest return on assets (ROA) that is in the same industry as firm i. Matching is based on ROA in year t-1, which is earning management index.

DACC = TACC -NDACC
To test proposed questions, use multivariate analysis. Finally, use following multiple regression consist of five information asymmetry measure in order to measure earning management.
Where; DACC = is the discretionary (managed) accounting accruals under modified Jones model IA_INDEX i,t = information asymmetry index which is calculate based on financial communication DEBT i,t = ratio of long-term debt divided by the book value of equity MKTBV i,t = market capitalization divided by the book value of equity SIZE i,t = natural log of the market capitalization GROWTH i,t = net revenues (current year) less net revenues (previous year) scaled by net revenues for the previous year.
The test of the model will be performed by estimating α1. It is anticipated that a α1 that is significantly greater that zero would provide evidence of a positive effect of information asymmetry level based on financial communication on the magnitude of earning management.