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COVID-19 Lockdown, Earnings Manipulation and Stock Market Sensitivity: An
Empirical Study in Iraq
ArticleinJournal of Asian Finance Economics and Business · May 2021
DOI: 10.13106/jafeb.2021.vol8.no5.0707
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Bushra Abdul Wahhab ALJAWAHERI, Hassnain Kadhem OJAH, Ahmed Hussein MACHI, Akeel Hamza ALMAGTOME /
Journal of Asian Finance, Economics and Business Vol 8 No 5 (2021) 0707–0715 707707
Print ISSN: 2288-4637 / Online ISSN 2288-4645
doi:10.13106/jafeb.2021.vol8.no5.0707
COVID-19 Lockdown, Earnings Manipulation and
Stock Market Sensitivity: An Empirical Study in Iraq
Bushra Abdul Wahhab ALJAWAHERI
1
, Hassnain Kadhem OJAH
2
, Ahmed Hussein MACHI
3
,
Akeel Hamza ALMAGTOME
4
Received: January 30, 2021 Revised: April 05, 2021 Accepted: April 15, 2021
Abstract
This article examines the potential impact of the Covid-19 Lockdown on earnings manipulation and stock market sensitivity to earnings
announcements. It also explores the effects of earnings manipulation after the COVID-19 outbreak on the share price sensitivity to the
earnings disclosures. The study uses a quantitative method to analyze the financial data consisting of 87 firms listed on the Iraq Stock
Exchange for the period from 2018 to 2020, which constitutes a total of (174 observations). We used Ohlson (1995) model to estimate
financial market reaction and sensitivity to earnings manipulation fluctuations and accounting information. The results show that companies
practice earnings manipulation to maintain earnings over a time series, which means a negative impact of earnings manipulation on all
earnings measures’ value relevance (EPS, BVS, and CFS). Accordingly, earnings manipulation negatively influences investor behavior
in the financial market, based mainly on financial reporting. The value relevance of financial reports has also decreased because of the
COVID-19 outbreak and related economic Lockdown. These results reflect a long-term adverse impact of earnings manipulation on investor
behavior and financial statements reliability.
Keywords: Economic Lockdown, COVID-19, Earning Manipulation, Stock Market Sensitivity
JEL Classification Code: E16, H83, M41, Q56
was the first victim of this epidemic, and the Covid-19
virus exhibited widespread and remarkable shock waves
in all Capital markets. After Europe and the United States,
Iraq recorded the first case in early February 2020, which
disrupted all country’s economic and financial activities.
This epidemic has shocked the entire global economy (Sun
et al., 2021). On the one hand, it exposed the imbalances
that have long characterized financial regulation. On the one
hand, it negatively affected all financial aspects globally
due to most countries’ containment measures. Investors’
positive behavior and the intervention of the supervisory
authorities on the financial markets in terms of regulation
and awareness of investors were among the main factors in
managing the current global economic crisis (Lee, 2020).
The novel coronavirus pandemic, which is also known as
SARS-CoV-2, is causing a shock to the global economy,
triggering an unprecedented economic sudden halt (Arfah
et al., 2020). This time, the situation is different for at
least two reasons. First, its impact on the overall economy
is more significant than any catastrophic bouts of the past
40 years. The containment measures taken to limit the spread
1
First Author. Lecturer, Department of Accounting, Faculty
Administration and Economics, University of Kufa, Iraq.
Email: bushraa.aljawaheri@uokufa.edu.iq
2
Lecturer, Department of Accounting, Faculty Administration and
Economics, University of Kufa, Iraq.
Email: hassnink.alshahmani@uokufa.edu.iq
3
Lecturer, Department of Accounting, Faculty Administration and
Economics, University of Kufa, Iraq.
Email: ahmedh.maji@uokufa.edu.iq
4
Corresponding Author. Lecturer, Department of Accounting, Faculty
Administration and Economics, University of Kufa, Iraq [Postal
Address: Prof. Dr. Akeel Hamza Almagtome, University of Kufa,
Najaf, 540011, Iraq] Email: akeelh.alhasnawi@uokufa.edu.iq
© Copyright: The Author(s)
This is an Open Access article distributed under the terms of the Creative Commons Attribution
Non-Commercial License (https://creativecommons.org/licenses/by-nc/4.0/) which permits
unrestricted non-commercial use, distribution, and reproduction in any medium, provided the
original work is properly cited.
1. Introduction
After China announced several cases of COVID-19 at the
end of December 2019, which was later identified as a new
member of the coronavirus family, the global stock market
Bushra Abdul Wahhab ALJAWAHERI, Hassnain Kadhem OJAH, Ahmed Hussein MACHI, Akeel Hamza ALMAGTOME /
Journal of Asian Finance, Economics and Business Vol 8 No 5 (2021) 0707–0715708
of the virus have brought the global economy to a standstill.
Second, governments’ economic responses worldwide are
based on a set of policy strategies and measures, including,
but not limited to, public health measures, fiscal measures,
macroprudential measures, and monetary or market
measures.
Regarding business and jobs, the markets responded
to the Corona pandemic with sharp declines, and investor
uncertainty rose to record levels which was not seen since
the global financial crisis of 2007–2009. On the other hand,
the financial market uses financial reporting information to
evaluate the companies’ future performance expectations,
which is usually derived from past performances, through
financial market perceptions of this information’s reliability
(Chen & Gong, 2019). Earnings per share should be
appropriate in determining stock prices and influencing
investor behavior when current activities reflect the
company’s success in employing its resources effectively
(Kumar, 2018). Several studies such as by Burgstahler and
Eames (2006), and Das et al. (2011) have examined the
response of stock prices to a dividend declaration. The three
most essential criteria for earnings in the financial market
are the level of earnings and avoiding losses, changes in
earnings related to its improvement and stability to some
extent, and analysts’ expectations about its performance.
These criteria are used as the basis for evaluating corporate
issuances, which are at the same time essential for investors
to make their investment decisions. Therefore, managers
evaluation of the performance of these institutions. Earnings
Manipulation will have short-term effects on the financial
market (Lee & Sung, 2021).
Budagaga (2017) indicates that earnings and book value
can express inventory values and variances in these values
and can be computed as information with appropriate values.
Koonce et al. (2011) also examined how investors react to
profit trends which is based performance based on financial
analysts’ expectations and motivations over multiple periods.
While it is based on the book value, its resources are directed
to alternative uses better than the current situation. The
results also indicate that investors use both metrics because
they have found that both metrics provide information about
the company’s expectations and management credibility. In
the current paper, we seek to determine the impact of the
Corona epidemic’s implications on stock prices’ sensitivity
to manipulating accounting numbers using an event
study approach. None of the previous publications on our
knowledge address the pandemic’s impact on accounting
numbers manipulation levels in the stock market. Therefore,
our study attempts to fill a research gap related to the effect
of the Corona pandemic’s implications on the sensitivity
of financial markets to the cases of fraudulent accounting
declared by companies.
Accordingly, the contributions of this research can be
summarized as follows:
• Determine the level and trend of manipulating
accounting earnings to explain their motives, whether
