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NAŠE GOSPODARSTVO / OUR ECONOMY Vol. 67 No. 4 / December 2021
NAŠE GOSPODARSTVO
OUR ECONOMY
pp. 96–107
ORIGINAL SCIENTIFIC PAPER
Citation: Kimouche, B. (2021). The 
Effect of Stock Market Listing on Real 
Earnings Management: Evidence From 
Algerian Companies. Naše gospodarstvo/
Our Economy, 67(4), 96-107.  
DOI: 10.2478/ngoe-2021-0024.
DOI: 10.2478/ngoe-2021-0024
UDK: 336.76:330.143(65)
JEL: C13, C52, M41
RECEIVED: JULY 2021
REVISED: OCTOBER 2021
ACCEPTED: NOVEMBER 2021
Vol. 67 2021 No.4 
The Effect of Stock Market Listing on 
Real Earnings Management: Evidence 
From Algerian Companies
Bilal Kimouche
The Université 20 Août 1955-Skikda-Algérie, Faculty of Economics, Commerce 
Sciences and Management Sciences, Algeria
b.kimouche@univ-skikda.dz
Abstract 
This paper aims to explore the effect of the Algiers Stock Exchange listing on 
real earnings management. The study included 14 non-financial non-listed 
companies during the period 2015-2019 and six non-financial listed companies 
during the period 2010-2019. Due to the small number of companies listed 
on the Algiers Stock Exchange, the period of study was extended in the case 
of listed companies to provide enough observations. The measurement of 
real earnings management is based on the model of abnormal cash flows 
from operations (Roychowdhury, 2006), while the hypothesis testing is 
based on a model of multiple linear regression. The results indicate that the 
company size and the nature of financial statement (consolidation) do not 
have any effect on real earnings management in Algerian companies. The 
results are not consistent with the author’s hypothesis about the positive 
effect of stock market listing on real earnings management. The empirical 
evidence suggests that the Algiers Stock Exchange listing has had a negative 
effect on real earnings management in Algerian companies. This might be 
due to the scrutiny of auditors and regulators as the number of companies is 
easy to control, which decreases the opportunity for Algerian companies to 
rely on real earnings management in accordance with the opportunistic or 
informational view. 
Keywords: real earnings management, stock market listing, company size, 
consolidation, Algerian companies
Introduction
 The main objective of accounting practice is to provide useful information for 
the users of financial statements to make decisions and allocate resources (IASB, 
2018). To this end, conceptual framework and accounting policies and rules are 
developed carefully by standard-setting bodies to guide managers towards improv-
ing the quality of accounting. However, that objective may not correspond with the 
objectives of managers and their interests as suggested by the agency theory (Jensen 
& Meckling, 1976). As a result, managers can engage in some practices to affect the 
financial statements in accordance with their specific objectives or to reassure users 
about their interests or provide signals to users about private information.

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Bilal Kimouche: The Effect of Stock Market Listing on Real Earnings Management: Evidence from the Algerian Companies
Real earnings management is a widely used practice to ma-
nipulate financial statements, especially since implementation 
of the Sarbanes Oxley-Act in 2002 (Graham et al., 2005), and 
the reinforcement of internal control systems and transpar-
ency by institutional bodies and companies. Real earnings 
management is usually used whether for opportunistic or 
informational objectives to change the form and content of 
financial statements, thus affecting users' perceptions of the 
company and their decisions.
Previous studies have looked into numerous aspects of real 
earnings management, including the determinant factors, 
suggesting that earnings management is determined by many 
factors, such as the financial and economic characteristics of 
companies. Stock market listing is a characteristic that can be 
useful to classify companies in terms of real earnings man-
agement or explain the differences between companies in this 
regard. Investigation of stock market listing as a potential de-
terminant of real earnings management can be justified by the 
many differences between listed and non-listed companies in 
terms of governance, financing resources, capital structure, 
ownership, consolidation of financial statements, institutional 
control and supervision, disclosure and transparency require-
ments, size, and users of financial statements.
Since the 1990s Algeria has been undergoing a long transition 
period to shift from socialism to capitalism and integrate into 
the international economy. This shift has been accompanied 
by deep economic and institutional reforms to keep up with 
the new economic reality. These reforms imposed an account-
ing reform to satisfy the needs of users who require different 
attributes of accounting quality within the new environment. 
As is the case in other countries, managers of Algerian com-
panies have a wide range of incentives to manipulate earnings 
based on operational decisions, especially under the Financial 
Accounting System, which was adopted in 2010.
Algeria has a young stock market that currently only includes 
six companies, because the majority of companies in Algeria 
are family and SMEs. The Algiers Stock Exchange is less 
active and less efficient compared to developed countries; 
however, it provides a complete database of market in-
formation and financial reports of companies. To date, no 
studies have been done to explore the effect of Algiers Stock 
Exchange listing on accounting practices in Algerian compa-
nies. Therefore, this study relates to the effect of stock market 
listing on real earnings management in Algerian companies 
through asking the following question:
Has the Algiers Stock Exchange listing had an impact on real 
earnings management in Algerian companies?
The purpose of this study is to explore whether the managers 
of Algerian companies employ real earnings management to 
manipulate financial statements and the extent to which real 
earnings management is employed. This study also aims to 
examine whether the Algiers Stock Exchange listing had an 
influence on the extent of real earnings management.
The results indicate that the stock market listing has had a 
negative effect on real earnings management in Algerian 
companies, which reflects the reality of the Algerian institu-
tional and economic environment, where the preparation of 
financial statements is primarily intended to meet the legal 
requirements rather than serving investors. The results also 
reflect the predominance of the scrutiny of auditors and reg-
ulators as the number of companies is easy to control, which 
decreases the opportunity for Algerian companies to rely on 
real earnings management in accordance with an opportunis-
tic or informational view.
This paper contributes to the empirical research on real 
earnings management in several ways. On the one hand, 
it interested in the stock market listing as a determinant of 
real earnings management, to which not enough attention 
has been paid in previous studies, and also provides supple-
mentary empirical evidence about real earnings management 
determinants. The study was conducted in Algeria, which is 
a developing country, providing additional evidence about 
earnings management practices in different environments.
The remainder of this paper is structured as follows. Section 
2 is a literature review, Section 3 clarifies the method and ma-
terials used, Section 4 summarises the results and discussion, 
and Section 5 contains the conclusion.
Literature Review and Hypotheses
Previous studies
Studies about earnings management determinants is a 
common research stream in accounting (Fakhfakh & Nasfi, 
2012; Charfeddine, Riahi & Omri, 2013; Sousa Paiva & 
Costa Lourenço, 2016; Priharta & Rahayu, 2019; Abdullahi 
et al., 2020; Saleh, Abu Afifa & Haniah, 2020; Tran & Duong, 
2020; Ghaleb, Kamardin & Tabash, 2020), which allows fluc-
tuations in earnings management levels to be understood as 
well as managers’ behaviour in terms of earnings manage-
ment. In this regard, many variables have been used as deter-
minants, such as indebtedness, company size, performance, 
ownership structure, dividend policy, leverage, performance, 
audit quality, etc. Even though the literature uses many deter-
minants from the financial market (prices, returns, volume, 
etc), few studies were found that investigate stock market 
listing as a determinant of earnings management. As a result, 

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NAŠE GOSPODARSTVO / OUR ECONOMY Vol. 67 No. 4 / December 2021
through this literature the author tried to include studies that 
touch on any dimensions of this study.
Burgstahler, Hail & Leuz (2006) examined whether capital 
market pressures and institutional factors motivate compa-
nies to report earnings that reflect economic performance, 
using the level of earnings management as a dimension of 
accounting quality. The study included 378,122 firm-year 
observations from private and public, non-financial compa-
nies, across 13 countries of the European Union, during the 
period 1997-2003. The results revealed that private com-
panies present higher levels of earnings management, and 
the strong legal systems are associated with lesser earnings 
management in private and public companies. They also sug-
gested that private and public companies respond differently 
to institutional factors (book-tax alignment, outside investor 
protection, capital market structure).
Lopes, Tukamoto & Galdi (2007) investigated the impact 
of cross-listing and adjustments towards the US GAAP on 
earnings management practices in Brazilian companies. 
Employing 1,026 firm-year observations during the period 
1996-2003, and using five proxies of earnings management, 
they found evidence that neither cross-listing nor adjustments 
towards the US GAAP have impacted earnings management 
in Brazilian companies.
Eng & Lin (2012) examined the quality of financial reporting 
of Chinese companies cross-listed in the United States and 
Hong Kong comparing the non-cross-listed Chinese compa-
nies, based on earnings management, timely loss recognition, 
and price-earnings association as measures of financial re-
porting quality. They indicated that both cross-listed and non-
cross-listed companies showed significant earnings smooth-
ing and earnings management, while they did not record 
any evidence about timely loss recognition practices. They 
concluded that the market considers the earnings and book 
value data of cross-listed companies to be more informative 
than those of non-cross-listed companies in the event of good 
news.
Cornanic & Novak (2015) studied earnings management as 
a means of avoiding delisting from a stock market, using a 
sample of 47,599 firm-year observations for 2,532 compa-
nies during the period 1998-2011. The results showed that 
companies in danger of being delisted from a stock market 
(NASDAQ) report higher performance-adjusted discretion-
ary accruals, and the inflated accruals are associated with an 
increased likelihood of maintained listing.
Mellado-Cid, Jory & Ngo (2017) analysed real earnings man-
agement by companies prior to their debt issuances and how 
they affect the bond yield spreads. The sample size employed 
consists of 5,608 firm-quarter observations, which is 
equivalent to 1,578 companies, during the period 1980-2012. 
According to the results, bond-issuing companies increased 
their real earnings management practices in the five quarters 
leading up to bond issuance. Additionally, an inverse associ-
ation between the yield spread and pre-issue real activities 
manipulation was observed.
Nuanpradit (2018) tried to explore the relationship between in-
formation asymmetry and sales activities-based real earnings 
management, and the effect of CEO-Chairman duality on that 
relationship in Thailand. The study included 3,582 firm-year 
observations from the Stock Exchange of Thailand during 
the period 2001-2015. The findings revealed that informa-
tion asymmetry increases real earnings management and that 
CEO-Chairman duality leads to real earnings management in 
companies without information asymmetry problems.
Dang, Hoang & Tran (2018) investigated the factors that 
impact accrual-based earnings management (AEM) and real 
earnings management (REM) in Vietnam. The study included 
260 companies listed on the Vietnam Stock Exchange during 
2012-2016. The results showed that consolidation of financial 
statements, financial performance, financial leverage, and 
stock issuance have positive impacts on AEM, while audit 
has a negative impact on AEM. In contrast, financial perfor-
mance and financial leverage have a positive impact on REM.
Haga, Höglund & Sundvik (2018) analysed real earnings man-
agement among privately-owned versus publicly listed com-
panies in the UK, using 90,594 private firm-year observations 
and 3,688 public firm-year observations for the years 2006 to 
2014. The findings suggested that public companies engage 
in more earnings management through operating activities. 
According to the explanations, capital market pressure and 
ownership characteristics drive the results.
Alawag (2021) explored the real earnings management 
behavior in the context of a parent-subsidiary relationship, by 
comparing between business groups and companies without 
any controlled subsidiaries. The study used the random-ef-
fects generalised least squares (GLS) estimation, including 
8,501 parent and nonparent companies from 73 countries, 
during the period 215-2019. The results showed that ultimate 
parent companies have lower abnormal production costs and 
abnormal discretionary expenses than nonparent companies. 
In contrast, parent companies have higher abnormal operating 
cash flow than non-parent companies.
In Algeria, and within the limits of this literature review, there 
is no study directly in relation to the subject of the present 
study, other than a few studies that looked into some of the 
determinants of accounting and real earnings management. 
Kimouche & Cherroun (2020) were interested in the effect 
of financial leverage on accounting earnings management in 

99
Bilal Kimouche: The Effect of Stock Market Listing on Real Earnings Management: Evidence from the Algerian Companies
Algerian companies. They employed the financial statements 
of 14 Algerian companies during the period 2006-2018, using 
a multiple linear regression model and panel data to test the 
hypotheses. According to the results, financial leverage does 
not have any effect on accounting earnings management in 
Algerian companies. However, the debt cost has a significant 
and positive impact on accounting earnings management.
Kimouche & Charchafa (2020) examined whether financial 
performance and activity level have an effect on real earnings 
management in Algerian companies. The study included 82 
firm-year observations for 17 Algerian companies during 
2015-2019, using a multiple linear regression model that 
relates real earnings management, measured as the abnormal 
operating cash flows, with the financial performance and 
activity level. The results suggested that the effect of financial 
performance on real earnings management is not significant. 
However, they suggested a negative and significant effect of 
the activity level on real earnings management in Algerian 
companies.
Kimouche & Cherroun (2020) analysed the impact of debts 
and their cost on real earnings management in Algerian com-
panies. The study used the model of Roychowdhury (2006) 
to measure real earnings management, and a multiple linear 
regression model to test the hypotheses, and included 119 
firm-year observations for 17 Algerian companies during the 
period 2012-2018. According to the results, debts and the cost 
of debts do not have any impact on real earnings management 
in Algerian companies, which contradicts most studies, due 
to the specificities of the economic and institutional Algerian 
environment.
Kimouche & Charchafa (2021) explored the effect of ac-
counting accruals on real earnings management in Algerian 
companies, starting from the view that there is a negative re-
lationship between accounting earnings management and real 
earnings management. The study included 100 observations 
relating to 20 companies from 2015 to 2019. The test of the 
hypothesis was based on a model under the form of linear 
regression that relates real earnings management proxy to 
accounting accruals. The results confirmed the assumption, 
suggesting a negative and statistically significant effect of 
accounting accruals on real earnings management in Algerian 
companies.
It is foreseen that this study will be useful both for literature 
and in practice. On the one hand, it relates to the stock market 
listing as a determinant of real earnings management, which 
has not received enough attention in studies to date. The stock 
market listing is a prominent variable that can substantially 
affect the governance system in companies and their relation-
ships with the external environment and also their obligations 
in terms of disclosure and transparency. On the other hand, 
this study was carried out in Algeria, which is a developing 
country, providing additional evidence about earnings man-
agement practices in different environments.
Real earnings management concepts
Earnings management is an accounting practice that is widely 
used by managers, whether intentionally or not, in order to 
affect the form and content of financial statements, which can 
affect their quality, thus changing the views of users towards 
the company and their assessments for its future perspectives. 
Schipper (1989) defined earnings management as a “purpose-
ful intervention in the external financial reporting process 
with the intent of obtaining some private gain”.
Watts & Zimmerman (1990) used an opportunistic view to 
describe earnings management as the use by managers of 
different methods and interpretations in financial accounting 
to achieve certain objectives, instead of having a faithful 
presentation of the company's financial position. According 
to Abad et al. (2018), earnings management can be achieved 
through managerial discretion in the application of account-
ing standards or by changing the timing or structuring of real 
transactions.
Healy & Wahlen (1999) also focused on the opportunistic 
view considering that earnings management occurs when 
managers use judgment in financial reporting and in struc-
turing transactions to alter financial reports to either mislead 
some stakeholders about the underlying economic perfor-
mance of the company or to influence contractual outcomes 
that depend on reported accounting numbers.
Since the mid-1980s, studies have traced an explosive growth 
in accounting earnings management practices by managers 
(Beneish, 2001). These practices are accrual-based, so they 
are easy to execute since accruals are the main product of 
GAAP and the result of accounting decisions related to the 
accounting policies and estimations. Accounting earnings 
management includes some techniques that are conducted in 
accordance with the accounting rules and principles, through 
the selection of appropriate accounting policies, and the use 
of estimations and judgments in the application of those ac-
counting policies, in order to control the level of earnings, 
which affects the performance of the company and its fi-
nancial position in terms of form and content (Kimouche & 
Cherroun, 2020).
Following the implementation of the Sarbanes Oxley-Act 
in 2002, which was introduced to increase transparency and 
support internal control, Cohen, Dey & Lys (2008) stated 
that the use of accounting earnings management significant-
ly declined. Consequently, real earnings management has 

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NAŠE GOSPODARSTVO / OUR ECONOMY Vol. 67 No. 4 / December 2021
become an alternative, as it is difficult for auditors and regula-
tors to discover because it can be identified as a legal response 
to the economic conditions (Cohen, Dey & Lys, 2008; Cohen 
& Zarowin, 2010; Kothari, Mizik & Roychowdhury, 2012; 
Abad et al., 2018). The increasing trend towards real earnings 
management is confirmed by Graham, Harvey, and Rajgopal 
(2005), who provide evidence that the financial officers of 
US public firms recognise that most earnings management 
actions are carried out via real actions.
Roychowdhury (2006) described real earnings management 
as departures from the normal operational practices of a 
company, which are motivated by the desire of managers to 
mislead all or some stakeholders that the financial reporting 
objectives have been met. According to Cooper, Downes & 
Rao (2017), real earnings management refers to the action 
of managers to change a company’s real activities by their 
operating, investment, and financing decisions to affect the 
financial position of a company and its financial performance.
Real earnings management is distinct from accounting 
earnings management because accrual-based earnings man-
agement involves discretionary accounting choices allowed 
within accounting regulation with no direct cash flow effects. 
On the contrary, real earnings management comprises real 
business activities that have a direct influence on cash flows 
from operations. The impact of real earnings management on 
performance derives from cash flows, not from accruals as is 
the case for accounting earnings management (Janin, 2000).
Real earnings management can be achieved through many 
managerial decisions related to the operation, such as sales 
manipulation (price discounts, flexible credit terms for cus-
tomers), overproduction to report a lower cost of sales, and 
discretionary expenditure (general and administrative, selling, 
and advertising expenditures). Managerial decisions for real 
earnings management also contain the investment decisions 
such as the sales of fixed assets and a reduction in research 
and development expenditure, as well as financing decisions 
such as stock options, stock repurchases, hedges, debt-equity 
swaps, and securitisation.
Existing literature has usually used two perspectives to 
explain earnings management motivations, the ‘Opportun-
istic view’ and the ‘Informational view’. The first assumes 
that managers employ earnings management to achieve 
self-benefits through misleading users or disclosing informa-
tion consistent with their expectations about the performance 
and financial position of the company. The second assumes 
that earnings management is a means to reduce information 
asymmetry by providing relevant information for users and 
provide a signal for the financial market about the company's 
future perspectives, in order to improve its valuation.
Based on the ‘Positive Accounting Theory’ of Watts & Zim-
merman (1978) and the works about the ‘Value Relevance’ of 
accounting information (Lev, 1989; Amir, Harris & Venuti, 
1993; Francis & Schipper, 1999; Barth, Beaver & Landsman, 
2001), earnings management motivations can be classified 
into three groups:
• Contractual motivations: where contracts between a 
company and stakeholders depend on financial state-
ments, thus managers seek to provide accounting infor-
mation consistent with contractual clauses to increase 
their incentives, improve their reputation or comply with 
debt covenants.
• Financial market motivations: where managers tend to 
affect stock prices, especially in the lead-up to IPOs and 
stock offerings, and disclose earnings consistent with 
analysts' forecasts or management estimates, to prevent 
any significant volatility in stock prices in the short term.
• Institutional motivations: that result from the expected 
relationship between accounting information and gov-
ernmental decisions leading managers to manipulate 
earnings to reduce income tax payments or avoid any 
potential legislation (antitrust, environment protection, 
consumer and employee rights, etc.), thus reducing po-
litical costs.
Hypotheses development
The explanations for the effect of stock market listing on real 
earnings management can be found in the financial market 
motivations of earnings management that correspond with the 
informational view. In this regard, earnings management can 
be useful, as it can potentially improve the informativeness 
of earnings by conveying private information on the future 
prospects of the company, which is beneficial to investors 
(Dechow & Skinner, 2000; Jiraporn et al., 2008; Siregar & 
Utama, 2008; Scott, 2011). Earnings management is also a 
means for managers to signal their expectations about the 
company's future performance and its cash flows.
Compared to non-listed companies, listed companies have 
more motivations to employ earnings management. The main 
explanation for this is to reduce the conflict of interest between 
shareholders, creditors, and managers (Mitchell, Agle & 
Wood, 1997). According to Ambrose & Bian (2010), the in-
formation contained in stock price volatility leads managers 
to avoid regulatory costs through earnings management. The 
adjustment of earnings figures through earnings management 
is also expected to reassure users of financial statements on 
the continuity and profitability of business operations, thus 
increasing the company's stock liquidity (Hieu et al., 2019).

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Bilal Kimouche: The Effect of Stock Market Listing on Real Earnings Management: Evidence from the Algerian Companies
Earnings management may allow managers to maintain a 
good reputation with stakeholders, as it can affect positively 
stock prices and company value (Change & Warfield, 2005; 
Chen et al., 2006; Charfeddine, Riahi & Omri, 2013; Chen, 
Cheng & Wang, 2015). For these reasons, it can be expected 
that managers of listed companies have more tendencies to 
manage earnings; hence this study starts from the following 
hypothesis:
Hypothesis: The Algiers Stock Exchange listing has had 
a positive effect on real earnings management in Algerian 
companies.
Method and Materials
Data collection
This study covered 14 non-financial non-listed companies 
during the period 2015-2019 and six non-financial listed com-
panies during the period 2010-2019. Due to the small number 
of companies listed on the Algiers Stock Exchange, the 
period of study in the case of listed companies was extended 
to provide enough observations for the model estimation. 
The only criterion used in the selection of the studied com-
panies was the availability and accessibility of their financial 
statements, due to the secrecy and caution that characterise 
corporate governance in Algerian companies. The financial 
statements were collected through direct contact with the 
chief financial officers of companies.
Model for hypotheses testing
The model used in this study takes the form of a linear regres-
sion that relates real earnings management (REM
it
) with the 
stock market listing (COT
it
), the nature of financial statements 
(NFS
it
), and company size (SIZE
it
) as shown in Equation (1). 
NFS
it
 and SIZE
it
 were added as control variables, because the 
consolidation procedures can affect the accounting practices 
of a company, whether in the separate or consolidated finan-
cial statements, while accounting practices differ according 
to company size.
REM COTN FS SIZE
it it it it it
   
01 23 (1)
Where REM
it
 is the extent of real earnings management; 
COT
it
 is the listing on the Algiers Stock Exchange; it takes 
1 if the company is listed on the Algiers Stock Exchange in 
the fiscal year, otherwise 0. NFS
it
 is the nature of financial 
statements; it takes 1 if the company presents consolidated 
financial statements for the fiscal year, otherwise 0. SIZE
it
is 
the company size at the end of the period calculated as the 
logarithm of total assets divided by ten. α
0
, α
1
, α
2
 are the re-
gressions coefficients; ξ
it
 is the error term.
Measurement of real earnings management
The measure of real earnings management is based on the 
abnormal cash flows from operations (Roychowdhury, 2006) 
as shown in Equation (2).
CFO
AA
S
A
NFS
S
A
NFS
it
it it
it
it
it
it
it
it i
 

 

1
01
1
2
1
3
1
1
 


t t
(2)
Where CFO
it
 is the net cash flows from operations for the 
period; A
it-1
 is the total assets at the end of the period; S
it
 is 
the sales for the period; β
0
, β
1
, β
2
, and β
3
 are parameters; δ
it
 is 
the error term, which represents the abnormal cash flows and 
is used as a proxy for real earnings management (cash-based 
earnings management).
Results and Discussion
Descriptive statistics
Table 1 presents the descriptive statistics for 124 firm-year 
observations of different variables. The table shows that the 
data includes 52 firm-year observations for listed companies 
versus 72 for non-listed companies, and 48 firm-year obser-
vations for companies with consolidated financial statements 
versus 76 for companies with separate financial statements. 
For SIZE, a comparison between the mean and the median 
suggests that the data are normally distributed, unlike REM 
where the mean is more than the median, indicating that real 
earnings management practices measured by abnormal cash 
flows represent an average of 7.83% of the total assets. Ac-
cording to the standard deviations, even though SIZE is more 
dispersed than REM, the dispersion of data is acceptable.
Correlation analysis
The results of correlation between different variables are 
summarised in Table 2, which indicates a negative medium 
and statistically significant relationship at 1% level between 
the Algiers Stock Exchange listing and real earnings manage-
ment, which means that Algerian listed companies practice 
less real earnings management than non-listed companies. In 

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NAŠE GOSPODARSTVO / OUR ECONOMY Vol. 67 No. 4 / December 2021
contrast, the relationships of the nature of financial statements 
and company size with real earnings management are not 
statistically significant. The relationships between different 
independent variables are not statistically significant, except 
that between the nature of financial statements and the Algiers 
Stock Exchange listing, which is positive medium and statis-
tically significant at a level of 1%.
Table 1. Descriptive statistics for the variables
REM
COT NFS
SIZE
1 0 1 0
Observations 124 52 72 48 76 124
Mean 0.0783 - - - - 0.7556
Median 0.0594 - - - - 0.7441
Std. 
Deviation
0.0642 0.0964
Minimum 0.0015 0 0 0.6126
Maximum 0.2761 1 1 0.9959
Source: Depending on SPSS.
Table 2. Correlation results
REM COT NFS SIZE
REM
Pearson Correlation 1 -0.376* -0.013 -0.071
Sig. (2-tailed) 0.002 0.884 0.431
COT
Pearson Correlation 1 0.353* -0.019
Sig. (2-tailed) 0.000 0.830
NFS
Pearson Correlation 1 0.012
Sig. (2-tailed) 0.896
Observations 124 124 124 124
*. The correlation is significant at 0.01 (2-tailed).
Source: Depending on SPSS.
Univariate analysis
The univariate analysis was based on a test, in terms of real 
earnings management, of the differences between the listed 
and non-listed companies on the one hand, and the compa-
nies with consolidated financial statements and companies 
with separate financial statements on the other hand. The 
Mann-Whitney test was employed, which is used to make 
comparisons between independent groups when data distribu-
tion is not normal. The results shown in Table 3 indicate that 
the mean of real earnings management for listed companies 
(0.057) is less than those for non-listed companies (0.093) 
and that the difference is statistically significant at a level of 
1% according to the Mann-Whitney test (Sig. = 0.000). The 
results also indicate that the mean of real earnings manage-
ment for companies with consolidated financial statements 
(0.077) is less than those for companies with separate finan-
cial statements (0.079) and that the difference is not statisti-
cally significant according to the Mann-Whitney test (Sig. = 
0.954).
Table 3. Mann-Whitney test results
REM(COT)
a
REM(NFS)
b
Mean(0) 0.093 0.079
Mean(1) 0.057 0.077
U de Mann-Whitney 1154 1870
W de Wilcoxon 2429 3301
Z -3.545 -0.058
Sig. asymptotic (2-tailed) 0.000 0.954
a. Grouping variable: COT. b. Grouping variable: NFS.
Source: Depending on SPSS.
Regression model estimation results
Table 4 summarises the results of the Model (1) estimation, 
which shows that the model of study is statistically significant 
at a level of 1% (Sig. = 0.010), as the calculated F statistic 
(3.965) is more than the F critical value in the table. As a 
result, the Adjusted R-squared is medium and reached 0.339, 
thus the independent variables in Model (1) explain 33.90% 
of the changes in real earnings management, and consequent-
ly, the remainder of the changes in real earnings management 
(66.10%) can be explained by errors and other variables.
In terms of the regression coefficients, it appears that the co-
efficient related to the company size (SIZE) is not statistically 
significant (Sig. = 0.369), suggesting that company size does 
not affect real earnings management, or in other word, there 
is no difference between big and small companies in terms 
of real earnings management. The coefficient related to the 
nature of financial statements (NFS) is also not statistically 
significant (Sig. = 0.097), therefore, the consolidation process 
does not have any effect on real earnings management, thus, 
in terms of real earnings management, there are no differenc-
es between companies with consolidated financial statements 
and those with separate financial statements.
The results indicate that the coefficient related to the Algiers 
Stock Exchange listing is statistically significant at a level 
of 1%, where the calculated T statistic (3.347) is more than 
the T critical value from the table. The coefficient reached 
0.041 with a negative sign, suggesting that the Algiers Stock 

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Bilal Kimouche: The Effect of Stock Market Listing on Real Earnings Management: Evidence from the Algerian Companies
Exchange listing has had a negative effect on real earnings 
management. Thereby, Algerian listed companies practice 
less real earnings management than non-listed companies, 
which contradicts the hypothesis of the study.
Table 4. Factor analysis results of structural capital
Model
a
Coefficient value T Sig. VIF Adjusted R squared F Sig. Durbin- Watson
1
(Constant) 0.129 2.889 0.005 -
0.339 3.965 0.010 1.889
COT -0.041 -3.347 0.001 1.143
NFS 0.020 1.679 0.097 1.143
SIZE -0.052 -0.902 0.369 1.001
a. Dependent variable: REM.
Source: Depending on SPSS.
Finally, the author tested the validity of Model (1) through the 
Ordinary Least Squares (OLS) assumptions. As illustrated in 
Table 4, the Variance Inflation Factors (VIF) are very low for 
all variables, which is consistent with the results of correla-
tion about the absence of any significant and strong correla-
tion between the independent variables, thus the criterion of 
multicollinearity is met. Table 4 also shows that the calculated 
Durbin-Watson value reached 1.889 and is situated between 
2 and the upper critical value (dU = 1.774). This means that 
the criterion of no autocorrelation (no linear dependence) 
between residuals is met. Table 5 shows the results of the 
normality test for the residuals, indicating that the Kolmog-
orov-Smirnov test and Shapiro-Wilk test are not statistically 
significant, neither at a level of 1% nor at 5%. Therefore, the 
residuals of Model (1) are normally distributed.
Table 5. Normality test results for the residuals
Kolmogorov-Smirnov
a
Shapiro-Wilk
Statistic df Sig. Statistic df Sig.
Standardised Residual 0.103 124 0.200 0.773 124 0.063
a. Lilliefors Significance Correction.
Source: Depending on SPSS.
Table 6. Homoscedasticity test results for the residuals
Breusch-Pagan and Koenker test statistics and sig-values
LM Sig.
BP 8.024 0.056
Koenker 6.311 0.097
Null hypothesis: heteroscedasticity not present 
(homoskedasticity) if sig-value less than 0.05, reject the null 
hypothesis.
Source: Depending on SPSS.
In terms of Table 6, which shows the results of the homosce-
dasticity test for the residuals, it appears that the Breusch-Pa-
gan test and Koenker test are not statistically significant, 
neither at a level of 1% nor at 5%. Therefore, the residuals 
of Model (1) are homoscedastic. According to these results, 
the OLS assumptions are met; hence the validity of Model 
(1) is confirmed.
According to the results of this study, company size does 
not have any effect on real earnings management, which is 
not the case for most of the previous studies that suggest 
differences between companies in terms of real earnings 
management according to their size. This can be due to 
the structure of the Algerian economy, where the majority 
of companies are SMEs or family firms, and therefore 
their managers are subject to the same motivations of real 
earnings management.
In terms of the nature of financial statements, it is supposed 
that accounting for consolidation provides managers with 
more flexibility to manipulate earnings. However, this is not 
the case in Algerian companies, where the results of study 
revealed no effect of consolidation on real earnings man-
agement. This can be explained by the objectives of consoli-
dated financial statements that tend to serve investors, while 
in Algeria the preparation of financial statements – whether 
consolidated or separated – is primarily aimed at meeting 
the legal requirements.

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NAŠE GOSPODARSTVO / OUR ECONOMY Vol. 67 No. 4 / December 2021
Finally, this study indicates that stock market listing has a 
negative effect on real earnings management, This finding 
differs from the results of Lopes, Tukamoto, and Galdi 
(2007) and Eng and Lin (2012), who found that cross-list-
ing did not have an effect on earnings management, and 
Cornanic and Novak (2015), Mellado-Cid, Jory, and Ngo 
(2017), Dang, Hoang, and Tran (2018), and Nuanpradit 
(2018), who found that stock market listing had a positive 
effect on real earnings management. The positive effect is 
due to the opportunistic motivation to maintain the listing 
or to achieve the expectations of managers or analysts, or to 
the informational motivation to reduce information asym-
metry, providing relevant information for users, and signal 
the stock market about the future perspectives of a company.
In Algeria, the explanations are different, where the negative 
effect of listing on real earnings management might be due 
to the scrutiny of auditors and regulators as the number of 
companies is easily controllable. Additionally, the listed 
companies are large and have clearly defined rules of gov-
ernance including the board of directors, internal audit and 
audit committee, which limit the practices of real earnings 
management. Moreover, the users of financial statements of 
listed companies are conscious of, and have the ability to 
analyse information or consult financial analysts, and they 
can also obtain information from other sources.
Conclusion
The determinant(s) of earnings management is a common 
research field in accounting for the purpose of explaining 
fluctuations of earnings management and understanding 
managers’ behaviour in terms of earnings management. In 
this regard, this paper relates to stock market listing as a 
determinant of real earnings management due to the im-
portance of stock market listing in the explanation of the 
behaviour of managers and their choices and explains the 
disparity between companies in terms of numerous char-
acteristics. Stock market listing is a prominent attribute 
because listed companies are exposed to different conditions 
than non-listed companies, such as institutional control, su-
pervision by market committees, reporting and transparency 
requirements, control of analysts and investors.
Due to the importance of stock market listing, this paper 
explored the effect of the Algiers Stock Exchange listing on 
real earnings management. The study included 14 non-fi-
nancial non-listed companies during the period 2015-2019 
and six non-financial listed companies during the period 
2010-2019. Due to the small number of companies listed 
on the Algiers Stock Exchange, the period of study in the 
case of listed companies was extended to provide enough 
observations for the model estimation. The study was based 
on the model of abnormal cash flows from operations (Roy-
chowdhury 2006) to measure real earnings management, 
and used the nature of financial statements (consolidated 
or separate) and the company size as control variables. The 
data analysis employed descriptive statistics, correlation, 
the Mann-Whitney nonparametric test, and multiple linear 
regressions.
The results indicate that company size and the nature of 
financial statements (consolidation) do not have an effect 
on real earnings management in Algerian companies, which 
contradicts the results of most previous studies. This can be 
explained by the particularities of the Algerian economy, 
which is mostly composed of SMEs and family firms. 
These results can also be assigned to the accounting culture 
in Algeria, where the preparation of financial statements – 
whether consolidated or separated – is primarily intended 
to meet the legal requirements rather than serving investors.
The results are not consistent with the hypothesis of this 
study on the positive effect of the Algiers Stock Exchange 
listing on real earnings management. The empirical evidence 
of this study suggests that stock market listing has a negative 
effect on real earnings management in Algerian companies. 
This is due to the scrutiny of auditors and regulators as the 
number of companies is easy to control, which decreases the 
opportunity for Algerian companies to rely on real earnings 
management in accordance with the opportunistic or infor-
mational view.
Despite the importance of this study, it is limited in terms of 
its methodology due to the small sample size and the use of 
only one indicator of real earnings management (abnormal 
cash flows), where existing literature has distinguished 
between many practices of real earnings management in-
cluding production costs and discretionary expenses that 
cannot be reflected by abnormal cash flows. Consequently, 
future studies must extend the sample size and use other in-
dicators of real earnings management and other explanatory 
or control variables such as industry, ownership structure, 
governance, and debt. Auditors of Algerian companies must 
pay more attention to real earnings management practices 
through the valuation of the internal control system, es-
pecially for non-listed companies, in order to enhance the 
quality of financial statements. Algerian regulators must put 
in place mechanisms of control for non-listed companies to 
reduce earnings management practices.

105
Bilal Kimouche: The Effect of Stock Market Listing on Real Earnings Management: Evidence from the Algerian Companies
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Bilal Kimouche: The Effect of Stock Market Listing on Real Earnings Management: Evidence from the Algerian Companies
Učinek kotacije na borzi na upravljanje realnih 
dohodkov: dokazi iz alžirskih podjetij
Izvleček
Namen tega članka je raziskati učinek kotacije na borzi v Alžiru na upravljanje realnih dohodkov. V študijo je bilo vključenih 
14 nefinančnih podjetij, ki niso kotirala na borzi v obdobju med letoma 2015 in 2019, in 6 nefinančnih podjetij, ki so kotirala 
na borzi v obdobju med letoma 2010 in 2019. Zaradi majhnega števila podjetij, ki kotirajo na borzi v Alžiru, smo za podjetja, 
ki so kotirala na borzi, podaljšali obdobje študije, da smo lahko prišli do zadostnega števila spoznanj. Merjenje upravljanja 
realnih dohodkov temelji na modelu nenormalnih denarnih tokov iz poslovanja (Roychowdhury, 2006), medtem ko preverjanje 
hipoteze temelji na modelu večkratne linearne regresije. Rezultati kažejo, da velikost podjetja in narava računovodskega 
izkaza (konsolidacija) ne vplivata na upravljanje realnih dohodkov v alžirskih podjetjih. Rezultati niso skladni z našo hipotezo 
o pozitivnem učinku kotacije na borzi na upravljanje realnih dohodkov. Empirični dokazi kažejo, da kotacija na borzi v Alžiru 
negativno vpliva na upravljanje realnih dohodkov v alžirskih podjetjih. To je lahko posledica nadzora s strani revizorjev in 
regulatorjev, saj je število podjetij enostavno nadzorovati, kar zmanjšuje možnost za alžirska podjetja, da se zanesejo na 
upravljanje realnih dohodkov v skladu z oportunističnim ali informacijskim pogledom.
Ključne besede: upravljanje realnih dohodkov, kotacija na borzi, velikost podjetja, konsolidacija, alžirska podjetja