Macroeconomic Growth Determinants and EarningsManagement: Investigating The Mediating Role of Corporate Governance and Accounting Quality

Earnings management is a long-term problem in the corporate governance of the world, and about 30-40 percent of publicly traded companies are involved in some types of earnings manipulation every year. Even though the role that macroeconomic variables play in earnings ‎management has been explored in past literature, the mediating roles that corporate governance and accounting quality mechanisms play in ‎this context have been rather underrepresented. This current research investigates the existence of the relationship between the determinants ‎of macroeconomic growth and earnings management in the emerging market economies and the mediation of corporate governance and ‎accounting quality. The study provides a variety of econometric methods, such as Structural Equation Modeling (SEM), System-GMM ‎estimation, and Baron Kenny mediation analysis using a comprehensive multinational panel dataset, which consists of 5,000 companies in ‎‎40 countries from 2010-2022. The measure of earnings management is through discretionary accruals through the Modified Jones Model, and ‎macroeconomic determinants include GDP growth, development of financial markets, and inflation rates. There is strong empirical evidence ‎in support of all hypotheses across model specifications. GDP growth and development of financial markets have a major negative impact ‎on earnings management, as well as inflation demonstrates a positive correlation with manipulation. Corporate governance and accounting quality become important mediators with total indirect effects of GDP growth and financial market development of -0.086 and -0.099, ‎respectively, 49 and 59 percent of the total effects. The SEM model fits very well, as shown by RMSEA of 0.067 and CFI of 0.962. The ‎level of macroeconomic stability has a significant impact on earnings management in governance and accounting quality channels. Corporate ‎governance describes at most 50 0.25% and accounting quality at most 35 0.25% of a macroeconomic influence on earnings manipulation, ‎thus supporting coordinated policy responses to emerging markets‎.