Opacity variables
| Variable | Description |
|---|---|
| Earnings aggressiveness | The measure was calculated by the median quotient between the total accruals and total lagged assets of country i in year t (the use of the median minimises the influence of extreme values). The higher the median accruals, the higher the earnings aggressiveness |
| Loss aversion | Loss aversion was calculated as follows: Firms with a low earnings level were defined as firms that exhibited a net profit per total assets between 0 and 1%. Similarly, firms with a low level of losses were defined as firms that exhibited a loss per total assets between 0 and −1%. Thus, the ratio is calculated by the difference between the number of firms with small positive profits and the number of companies making losses in the total number of companies. The higher the ratio in country c and year t, the greater the companies’ trend towards earnings management to avoid reporting losses |
| Earnings smoothing | Earnings smoothing is calculated by the cross–sectional correlation between changes in accruals and changes in cash flows, divided by the total lagged assets. The more negative this correlation, the higher the level of earnings smoothing in country c in year t |
| Variable | Description |
|---|---|
| Earnings aggressiveness | The measure was calculated by the median quotient between the total accruals and total lagged assets of country |
| Loss aversion | Loss aversion was calculated as follows: Firms with a low earnings level were defined as firms that exhibited a net profit per total assets between 0 and 1%. Similarly, firms with a low level of losses were defined as firms that exhibited a loss per total assets between 0 and −1%. Thus, the ratio is calculated by the difference between the number of firms with small positive profits and the number of companies making losses in the total number of companies. The higher the ratio in country |
| Earnings smoothing | Earnings smoothing is calculated by the cross–sectional correlation between changes in accruals and changes in cash flows, divided by the total lagged assets. The more negative this correlation, the higher the level of earnings smoothing in country |
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