Inventories Discretionary Management through Real Activities

The Case of Small and Medium-Sized Portuguese Companies in Commercial Sector

  • Maria Filipa Miranda Nogueira University of Aveiro
  • Augusta Ferreira Higher Institute of Accounting and Administration (ISCA-UA), University of Aveiro, Aveiro, Portugal; Center for Research in Accounting and Taxation, Polytechnic Institute of Cávado and Ave, 4750-810 Barcelos, Portugal https://orcid.org/0000-0003-1659-3309
  • Carlos Ferreira LASI/IEETA, DEGEIT, University of Aveiro, Aveiro, Portugal https://orcid.org/0000-0002-2799-643X
DOI: https://doi.org/10.34624/ijbi.v1i4.30801
Keywords: inventory, discretionary, real activity, management, small and medium enterprises

Abstract

This study focuses on the discretionary management of inventories based on real activity and the repercussions on the financial statements. We show the evidence of the discretionary management of real activity on inventories in 30,797 Portuguese Small and Medium-sized Enterprises (SME) from the commercial sector and its influence on financial information, using the adaptation of the quantitative methodology used by Roychowdhury (2006). Managers have the power to choose real activities to achieve their objectives. These discretion cause changes in the value of financial reporting of companies, which can be stimulating for managers who want to present financial statements that meet the requirements of stakeholders and their own interests. The results obtained allowed for the verification that the discretion included in inventory management is related to commercial management and confirmed that managers seek to act in a way that maximizes their welfare by using discretion. The discretion causes deliberate changes in the economic and financial conditions of companies and, consequently, in the financial statements that are the element of support for decision making, for this reason it is deliberately caused asymmetry of information between the owner and other stakeholders in the information as is assumed in the agency theory and positive accounting theory.

Published
2022-12-23
How to Cite
Nogueira, M. F., Ferreira, A., & Ferreira, C. (2022). Inventories Discretionary Management through Real Activities. International Journal of Business Innovation, 1(4), e30801. https://doi.org/10.34624/ijbi.v1i4.30801
Issue
Volume 1 Issue 4 (2022)
Section
Accounting

Copyright (c) 2022 Maria Filipa Miranda Nogueira, Augusta Ferreira, Carlos Ferreira

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