Taking a long view: Investor trading horizon and earnings management strategy

2020 ◽  
Author(s):  
Yeejin Jang ◽  
Kyung Yun (Kailey) Lee
Keyword(s):  
Earnings Management ◽  
Management Strategy ◽  
Investor Trading

Market Reaction to Abnormal Inventory Growth: Evidence for Managerial Decision-Making

2021 ◽  
Author(s):  
Kirsten A. Cook ◽  
G. Ryan Huston ◽  
Michael R. Kinney ◽  
Jeffery S. Smith
Keyword(s):  
Earnings Management ◽  
Management Strategy ◽  
Earnings Forecasts ◽  
Manufacturing Firms ◽  
Fixed Costs ◽  
Managerial Decision ◽  
Managerial Decision Making ◽  
Investor Confidence ◽  
Analyst Earnings ◽  
Market Premium

Prior research demonstrates that manufacturing firms increase production (relative to sales) to transfer fixed costs from cost of goods sold (COGS) to inventory accounts, thereby increasing income to reach or surpass earnings thresholds. We examine how the market reacts to this earnings management strategy. We find that investors respond positively to inventory growth based on an expectation of increased future sales; however, this signal is weaker for inventory manipulators. Further, the market premium from meeting or beating analyst earnings forecasts by manipulating inventory is smaller than the premium for achieving this threshold absent inventory manipulation or through accrual manipulation. Finally, we examine firms considered to be “serial” inventory manipulators, finding that the market consistently discounts earnings beats for these firms, suggesting that inventory manipulation erodes investor confidence in firms’ earnings. Collectively, our results provide new insights into a challenge facing operations managers and finance managers in manufacturing firms.

Long-Term Orientation and Earnings Management Strategies

2019 ◽  
Vol 18 (3) ◽  
pp. 97-119 ◽  
Author(s):  
Jesper Haga ◽  
Fredrik Huhtamäki ◽  
Dennis Sundvik
Keyword(s):  
Earnings Management ◽  
High Precision ◽  
Management Strategy ◽  
Management Strategies ◽  
Real Earnings Management ◽  
Short Term ◽  
Country Level ◽  
Earnings Benchmarks ◽  
Jel Classifications

ABSTRACT In this study, we investigate how country-level long-term orientation affects managers' willingness to engage in earnings management and choice of earnings management strategy. Using a comprehensive dataset of 47 countries for the period from 2003 to 2015, we find that firms in long-term-oriented cultures rely relatively more on earnings management through accruals, while firms in short-term-oriented cultures engage in relatively more real earnings management. Furthermore, we find a larger discontinuity around earnings benchmarks in long-term-oriented cultures suggesting that manipulation of accruals enables benchmark beating with high precision. JEL Classifications: M14; M16; M21; M41.

scholarly journals Selection of profit management strategy

2022 ◽  
Vol 6 ◽  
Author(s):  
Ni Wayan Sukma Kartika Dewi ◽  
Ni Made Dwi Ratnadi ◽  
I Ketut Yadnyana ◽  
I Gusti Ngurah Agung Suaryana
Keyword(s):  
Earnings Management ◽  
Management Strategy ◽  
Stock Exchange ◽  
Linear Regression Analysis ◽  
Secondary Data ◽  
Sampling Technique ◽  
Real Earnings Management ◽  
Annual Reports ◽  
Manufacturing Companies ◽  
Classification Shifting

The purpose of this study is to empirically prove the companies in the growth, mature, and stagnant stages use accrual earnings management, real earnings management, and classification shifting. The data used is secondary data obtained from the annual reports of manufacturing companies listed on the Indonesia Stock Exchange in the 2016-2020 period. The data analysis technique used multiple linear regression analysis. The sampling technique used was purposive sampling technique and obtained a sample of 53 manufacturing companies or the same as 265 observational data. Based on the results of the analysis, it was found that the company is in the growth mature and stagnant stage using the accrual earnings management strategy. The growth stage of the company does not use a real earnings management strategy, the mature and stagnant stage, the company uses a real earnings management strategy. Companies in the growth and mature stages do not use the classification shifting strategy.

Earnings management and institutional investor trading prior to earnings announcements

2019 ◽  
Vol 9 (1) ◽  
pp. 22-50 ◽  
Author(s):  
Shasha Liu
Keyword(s):  
Earnings Management ◽  
Institutional Investors ◽  
Earnings Announcements ◽  
Chinese Stock Market ◽  
Data Set ◽  
Content Type ◽  
Trading Patterns ◽  
Earnings Surprises ◽  
Trading Pattern ◽  
Investor Trading

PurposeThe purpose of this paper is to investigate if earnings management affects the trades of different investors prior to earnings announcements.Design/methodology/approachUsing a unique account-level trading data set from the Chinese stock market, the author investigates the different investor trading patterns prior to earnings announcements.FindingsThe author obtains direct evidence to show that: first, institutional investors, particularly active ones, tend to sell (buy) stocks before negative (positive) earnings surprises; second, institutional investors buy stocks intensively with the lowest earnings management and the highest earnings surprises, and the trading patterns are primarily driven by active institutions. No significant trading pattern is observed on the stocks with negative earnings surprises; and third, the author uses a natural experiment in accordance with the Chinese accounting standards reform to address endogeneity, and the causality of the results still holds.Originality/valueThe findings provide clear evidence by emphasizing the importance of earnings management in the formulation of investor decisions.

Bank earnings management and income smoothing using commission and fee income

2017 ◽  
Vol 13 (4) ◽  
pp. 419-439 ◽  
Author(s):  
Peterson K. Ozili
Keyword(s):  
Earnings Management ◽  
Management Strategy ◽  
Income Smoothing ◽  
Policy Implications ◽  
Too Big To Fail ◽  
Content Type ◽  
Interest Income ◽  
Ex Post ◽  
European Banks ◽  
Reported Earnings

Purpose The purpose of this paper is to investigate whether European banks use commission and fee income (CF) to smooth reported earnings or to persistently increase reported earnings as an income-increasing earnings management strategy. Design/methodology/approach The author tests the income-smoothing hypothesis following the approach of Stubben (2010) and Ahmed et al. (1999). Findings The author finds that European banks use CF to smooth reported earnings and this behaviour is pronounced among non-too-big-to-fail (NTBTF) European banks compared to too-big-to-fail (TBTF) European banks. The author also finds a positive and significant correlation between interest income and non-interest income (CF) indicating increased systematic risk due to reduced diversification benefits. The author also finds that the CF of NTBTF banks is procyclical with fluctuating economic conditions but not for TBTF banks. Also, the author finds evidence for income-increasing earnings management in the post-crisis period, for larger European banks and when banks have higher ex post interest income, implying that the propensity to engage in income-increasing earnings management significantly depends on bank size and ex post interest margin considerations. The findings have policy implications. Originality/value The author examines alternative financial numbers that banks use to manage earnings. The author focusses on income smoothing via CF among European banks, a context that has not been explored in the literature.

scholarly journals Malaysian Listed Firm’s Tax Avoidance: Another Earnings Management Strategy?

2019 ◽  
Vol 9 (2) ◽  
Author(s):  
Mohd Waliuddin Mohd Razali ◽  
Pong Xiang Yi ◽  
Rayenda Khresna Brahmana ◽  
Akmal Hisham Tak
Keyword(s):  
Earnings Management ◽  
Management Strategy ◽  
Tax Avoidance

Earnings management and earnings predictability: A quantile regression approach

2020 ◽  
pp. 031289622094575
Author(s):  
Leon Li ◽  
Nen-Chen Richard Hwang ◽  
Gilbert V Nartea
Keyword(s):  
Quantile Regression ◽  
Earnings Management ◽  
Information Asymmetry ◽  
Management Strategy ◽  
Management Strategies ◽  
Jel Classification ◽  
High Quantiles ◽  
Regression Approach ◽  
Earnings Predictability ◽  
Managerial Choice

This study argues that the managerial choice of earnings management strategy could be contingent upon a firm’s information asymmetry and such a strategy may affect the firm’s earnings predictability. Measuring information asymmetry by earnings predictability based on the subsequent industry-adjusted dispersion in analysts’ forecasts and employing a quantile regression to analyze 28,383 US firm-year observations from 1988 to 2014, this study reports that the effect of earnings management strategies on earnings predictability is nonuniform. Specifically, the amount of absolute discretionary accruals is negatively (positively) related to the subsequent industry-adjusted dispersion in the low (high) quantiles of analysts’ forecasts. These results support the hypothesis that a firm could implement earnings management strategies according to the degree of information asymmetry between the firm’s management and corporate outsiders. JEL Classification: G12, G32

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