Earning management is the classic method that managers use to convey the
performance of the firms that they supervise or to send signal about the firm future
opportunities. McKee (2005) claims that çEarning management is reasonable and legal
management decision making and reporting intended to achieve stable and predictable
financial results.é This is different from illegal activities (fraud) to manipulate financial
statements and report results that do not reflect economic reality. There are many
researches suggest that earnings is a pervasive phenomenon. Both private firms and
public firms have their own incentive to manage earnings.