The Impact of Classification Shifting on Firm Value (An Empirical Study)

Ibrahim, Prof. Mohamed Zedan; Elsayed, Dr. Mohamed Saber Hamouda; Saadah, Dr. Tarek Ibrahim Saleh; El Sawaf, Heba Allah Gaber

doi:10.21608/masf.2024.374622

The Impact of Classification Shifting on Firm Value (An Empirical Study)

نوع المستند : المقالة الأصلية

المؤلفون

¹ Professor of Financial Accounting Faculty of Commerce, Menoufia University

² Assistant Professor of Accounting Faculty of Commerce, Menoufia University

³ Assistant Lecturer in Accounting Department Faculty of Commerce, Menoufia University

10.21608/masf.2024.374622

المستخلص

Purpose: This study seeks to examine the impact of classification shifting (CS) practices on firm value. The current study empirically investigates the impact of income classification shifting (ICS) and cash flow classification shifting (CFCS) on firm value. Two alternative measures were used to proxy for firm value which are market-to-Book ratio (MTB) and return on assets (ROA). ICS was measured by unexpected gross profit whereas CFCS was measured by unexpected net operating cash flows.
Design/methodology: The study was conducted on a sample consisting of 48 firms listed in the Egyptian Stock Exchange (ESE) during the period from 2017 to 2021. Generalized Least squares (GLS) regression test and Kruskal Wallis test were employed to test the research hypotheses.
Findings: The results found a significant positive impact of CFCS on MTB while ICS was negatively significant. As for the second measure ROA, the findings revealed that ICS and CFCS have a significant positive impact on ROA. Further, the results reported the existence of significant differences among sectors in ESE regarding MTB and ROA, but no significant differences concerning ICS and CFCS.
Originality/value: This study contributes to the existing literature by examining the impact of CS practices including ICS and CFCS on firm value. Most of the prior literature mainly focused on accrual-based earnings management and real earnings management practices. The current study adds to the body of research by providing novel evidence of CS practices in the Egyptian context. Moreover, a limited number of studies have investigated the impact of CS practices on the value of firms, therefore this study aims to fill this gap in the literature. Finally, the study findings are valuable for standards setters, investors, analysts, regulators, and auditors.

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