Erasmus University Rotterdam Erasmus School of Economics Subdepartment Accounting, Auditing & Control Professional Football Organizations & Earnings Management: Master thesis Name: Rob Riedijk Student no.: 325927 E-mail: [email protected] Phone: +31 (0)6 19 49 92 38 Supervisor: drs. R. van der Wal RA Co-reader: ……………………………….. Contents 1 Introduction ...................................................................................................................................... - 1 - 1.1 General Introduction ................................................................................................................. - 1 - 1.2 Research question ..................................................................................................................... - 3 - 1.3 Sub questions ............................................................................................................................ - 4 - 1.4 Relevance .................................................................................................................................. - 4 - 1.5 Structure .................................................................................................................................... - 4 - 2 Law and regulation regarding PFO’s ................................................................................................. - 6 - 2.1 Introduction ............................................................................................................................... - 6 - 2.2 License requirements ................................................................................................................ - 6 - 2.3 Financial Reporting .................................................................................................................... - 6 - 2.4 Accounting Standards ................................................................................................................ - 7 - 2.4.1 IFRS ..................................................................................................................................... - 8 - 2.4.2 Dutch GAAP ........................................................................................................................ - 8 - 2.4.3 UK GAAP ............................................................................................................................. - 9 - 2.4.4KNVB GAAP and FA GAAP .................................................................................................. - 10 - 2.5 Comparison of IFRS, UK GAAP, Dutch GAAP .......................................................................... - 11 - 2.5.1 Conflicts between KNVB GAAP and IFRS .............................................................................. - 15 - 2.6 Conclusion ............................................................................................................................... - 16 - 3 Identifying stakeholders from a PFO ............................................................................................. - 17 - 3.1 Introduction ............................................................................................................................. - 17 - 3.2 Stakeholder theory .................................................................................................................. - 17 - 3.3 Identifying stakeholders from a PFO ....................................................................................... - 18 - 3.4 Conclusion ............................................................................................................................... - 21 - 4 Earnings management .................................................................................................................... - 22 - 4.1 Introduction ............................................................................................................................. - 22 - 4.2 Earnings management definitions ........................................................................................... - 22 - 4.3 Methods and patterns to manage earnings ............................................................................ - 23 - 4.4 Contracting costs ..................................................................................................................... - 24 - 4.4.1 Positive Accounting Theory .................................................................................................. - 25 - 4.5 Methodology to detect earnings management ...................................................................... - 26 - 4.5.1 Accrual-based models .......................................................................................................... - 27 - 4.6 Conclusion ............................................................................................................................... - 30 - 5 Empirical Research on Earnings Management ............................................................................... - 31 - 5.1 Introduction ............................................................................................................................. - 31 - 5.2 Empirical research on the debt covenant hypothesis ............................................................. - 31 - 5.2.1 Proxies for tightness of constraints .................................................................................. - 33 - 5.3 Emperical research on earnings management in public and private firms ............................. - 35 - 5.4 Summarizing table ................................................................................................................... - 36 - 5.5 Conclusion ............................................................................................................................... - 40 - 6 Hypotheses and research design .................................................................................................... - 41 - 6.1 Introduction ............................................................................................................................. - 41 - 6.2 Hypotheses development ....................................................................................................... - 41 - 6.2.1 Hypotheses H1, H2 and H3 ............................................................................................... - 42 - 6.2.2 Hypothesis H4 ................................................................................................................... - 43 - 6.3 Research Design ...................................................................................................................... - 44 - 6.3.1 Control variables............................................................................................................... - 47 - 6.3.2 Sample .............................................................................................................................. - 48 - 6.4 Summary.................................................................................................................................. - 48 - 7. Research results ............................................................................................................................ - 50 - 7.1 Introduction ............................................................................................................................. - 50 - 7.2 Descriptive statistics ................................................................................................................ - 50 - 7.3 Regression output ................................................................................................................... - 52 - 7.4 Hypotheses testing .................................................................................................................. - 54 - 7.5 Interpretation .......................................................................................................................... - 58 - 7.6 Summary.................................................................................................................................. - 59 - 8. Conclusion and Limitations ........................................................................................................... - 60 - 8.1 Introduction ............................................................................................................................. - 60 - 8.2 Conclusion ............................................................................................................................... - 60 - 8.3 Limitations ............................................................................................................................... - 61 - 8.4 Recommendation for future research ..................................................................................... - 62 - 9. References ..................................................................................................................................... - 63 - Appendix I .......................................................................................................................................... - 69 - Appendix II ......................................................................................................................................... - 71 - Appendix III ........................................................................................................................................ - 74 - 1 Introduction 1.1 General Introduction Recently,