This study explores the earnings management practices of small-sized Italian companies. Adopting the\r\nearnings distribution approach, it finds that these companies are likely to manage their earnings to\r\nachieve two earnings level targets. On the one hand, they manage their earnings to report slightly\r\npositive earnings. Those with negative earnings manage them upward to be above the zero threshold.\r\nThose with positive earnings manage them downward to bring them close to zero. On the other hand,\r\nthey manage their earnings to minimize earnings changes. The main implication of the findings of this\r\nstudy is that the small-sized Italian companies� earnings are not unconditionally informative regarding\r\ntheir performance. In other words, they are of poor quality. As a result, they should be interpreted with\r\ncaution by those who use financial statement information. This study mainly enriches the literature on\r\nearnings management in two ways. Firstly, it provides evidence on small-sized companies� earnings\r\nmanagement practices which are very little explored in literature. Secondly, it provides additional\r\nevidence on the earnings management practices undertaken in the Italian setting, and so in countries\r\nwhich are characterized by a code law system and a close alignment between accounting and tax\r\nsystems.
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