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Summary
Managers have the ability to attract investors through practicing earnings management and playing with the financial ratios of the firm. Prior research focus mainly on the effect of corporate governance on earnings management while very few studies the effect of firm characteristics on earnings management specially in developing countries (Ahmad et al 2014).
The prior research show significant relationship between the variables however the type of relation has not been agreed upon. Different theories like the agency theory, signaling theory and the information asymmetry theory played a great role in supporting the relationship between the different variables of the firm characteristics (independent variables) and the earnings management (dependent variable).
Hypotheses resulting from prior research regarding the relation between firm characteristics and earnings management must be tested and analyzed therefore the next chapter will introduce the methodologies that will be used to be able to test for the hypotheses and the tools and techniques to be used in measuring the variables.
