ASSOCIATION BETWEEN INNOVATION AND EARNING MANAGEMENT: EMPIRICAL EVIDENCE FROM THE UK

Abstract

The aim of this paper is to examine the impact of innovation on earning management of firms listed on the London stock exchange. The motivation of the study is that the UK is encouraging innovations by raising the R&D budget to 2.4% of GDP by 2027. The sample of the study comprises firms which are included in FTSE350. However, subject to various sample restrictions, only 134 companies are finalized for analysis. The data of the study comprised of 10 years, i.e. from the year 2010 to 2019. Innovation is proxied by R&D 
expenditures, while firm size, growth and leverage are considered as control variables. In order to test the hypothesis of the study, regression model is used. The findings of the study posit that innovation (R&D) has a significantly positive impact on earning management.