Impact of changes in discretionary expenses on financial ratios using comparative analysis: The case for Philippine publicly listed firms in the industrial sector

• Main Authors: Ledesma, Mervin Bryann G., Lui, Elyse O., Pingol, Samuel G., Tiam-lee, Maria Carissa Camille U.
• Format: text
• Language: English
• Published: Animo Repository 2014
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/11950
• Institution: De La Salle University

Earnings management has become prevalent in the last few years as a result of the changing financial environment. The recently consummated Global Financial Crisis is one of the events that has increased the level of scrutiny of the stakeholders and other users of financial information in the financial statements. The more watchful and critical eyes of the public toward financial information is a product of heightened reliance to protect themselves from being misled by unfaithful representation of companies financial standing. With this phenomenon, the paper is a three-faceted research. First (1), the research investigated on the possible manipulation of discretionary expenses by examining the behavior of particular expenses using parametric techniques over a particular sampling period. After delving into the trends of the discretionary expenses (2), the researchers analyzed and interpreted the effect of discretionary expenses on financial ratios. Finally (3), the researchers checked whether there is a correlation between actual net income and forecasted net income. In the pursuit of meeting the objectives of the study, Philippine publicly-listed companies from 2008 to 2012 in the Industrial sector were identified and subjected to statistical methods. The researchers established that there were no significant differences between discretionary expenses from year to year however a behavior of decrease can be considered notable in the last two years of the sampling period. Parallel to this decrease is the positive correlation of actual net income and forecasted net income in the same years. On the other hand, only Earnings per Share has a significant impact among the discretionary expenses chosen as independent variables.