Determinants of the income strategy of publicly listed corporations in the Philippines: Does accounting choice matter?

Date of Publication


Document Type

Master's Thesis

Degree Name

Master of Science in Accountancy


Ramon V. Del Rosario College of Business



Thesis Adviser

Rodiel C. Ferrer

Defense Panel Chair

Joy Lynn R. Legaspi

Defense Panel Member

Alger C. Tang
Franklin Ramirez
Brian C. Gozun


The motivation of managers in selecting accounting policy is believed to be beyond the methods simplicity, ease of implementation, and cost-benefit tradeoff to manage earnings. The use of accounting methods in earnings management is influenced by many factors which are emphasized in the positive accounting theory (PAT), grounded on managerial opportunism.

Anchored on PAT, this study examines whether efficient contracting, political sensitivity, need for financing, and information signaling influence income strategy of management. This study further includes investment opportunity set (IOS), and monitoring indicators ownership concentration, board composition, and external auditor. The study examines the factors that influence the choice of accounting methods when used as income strategy of sixty listed companies for a five-year period 2011-2015. Income strategy, either income-increasing or income-decreasing, is based on the portfolio of accounting policy choices made by management on inventory valuation, subsequent measurement of depreciable PPE, land, investment property, and software, and depreciation method. This study tests the theory in two frameworks the first one considers all constructs as independent variables while the second one incorporates IOS as mediating variable and the monitoring variables as moderating variables.

Using Partial Least Square Structural Equations Modeling (PLS-SEM), the study found significant negative direct relationship between efficient contracting and income strategy, and positive direct relationship between ownership concentration income strategy which suggest the alignment of interests between shareholders and management. Political sensitivity is also found to be negatively significant which validates that executives of Philippine companies choose income-decreasing policies to reduce the perceived size and resources of the company and avoid government interventions and actions from labor union. As the Philippines is still an emerging market, it is reasonable to expect that management will strive to appear small and less resourced to avoid these tensions.

The second framework only found political sensitivity as the significant factor. This implies that among the variables, political sensitivity is the most important factor in management decision. IOS failed to mediate in the impact of efficient contracting on income strategy while monitoring variables are also found to be insignificant when used as moderating variables.

The study only validated three out of the eight factors presumed to impact income strategy which indicates the presence of earnings management through accounting policy choices. Although managerial opportunism is not entirely observable, results imply that shareholders interest has been considered in managements accounting choice.

Abstract Format






Accession Number


Shelf Location

Archives, The Learning Commons, 12F Henry Sy Sr. Hall

Physical Description

xii, 140 pages ; 30 cm. + 1 computer optical disc (4 3/4 in.)


Industrial management--Philippines; Earnings management--Philippines

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