Product market competition and earnings management: A firm-level analysis

2017 ◽  
Vol 45 (5-6) ◽  
pp. 604-624 ◽  
Author(s):  
Guifeng Shi ◽  
Jianfei Sun ◽  
Li Zhang
Keyword(s):  
Earnings Management ◽  
Market Competition ◽  
Product Market ◽  
Product Market Competition ◽  
Firm Level ◽  
Level Analysis

scholarly journals Macroeconomic Policy, Product Market Competition, and Growth

2020 ◽  
Vol 20 (25) ◽  
Author(s):  
JaeBin Ahn ◽  
Romain Duval ◽  
Can Sever
Keyword(s):  
Market Competition ◽  
Strong Support ◽  
Product Market ◽  
Macroeconomic Policy ◽  
Product Market Competition ◽  
Firm Level ◽  
Strong Product ◽  
Theoretical Predictions ◽  
Output Losses ◽  
Intangible Investment

While there is growing evidence of persistent or even permanent output losses from financial crises, the causes remain unclear. One candidate is intangible capital – a rising driver of economic growth that, being non-pledgeable as collateral, is vulnerable to financial frictions. By sheltering intangible investment from financial shocks, counter-cyclical macroeconomic policy could strengthen longer-term growth, particularly so where strong product market competition prevents firms from self-financing their investments through rents. Using a rich cross-country firm-level dataset and exploiting heterogeneity in firm-level exposure to the sharp and unforeseen tightening of credit conditions around September 2008, we find strong support for these theoretical predictions. The quantitative implications are large, highlighting a powerful stabilizing role for macroeconomic policy through the intangible investment channel, and its complementarity with pro-competition product market deregulation.

Size-Competition-Productivity Nexus: Evidence from Indian Manufacturing Firms

2019 ◽  
Vol 20 (2) ◽  
pp. 303-321
Author(s):  
Lopamudra D. Satpathy ◽  
Bikash Ranjan Mishra
Keyword(s):  
Firm Size ◽  
Market Competition ◽  
Value Added ◽  
Product Market ◽  
Manufacturing Firms ◽  
Product Market Competition ◽  
Causality Test ◽  
Firm Level ◽  
Panel Ardl ◽  
Long Run

Over the years, researches have witnessed incongruence nature and direction of relationship among product market competition and firm size with the growth of firms’ productivity across the globe. Considering these gaps, this study aims to establish both short- and long-run relationships among these three characteristics of Indian manufacturing firms and intends to find their directions of causalities. This study uses firm-level data over a period of 1998–1999 to 2012–2013. Using Panel ARDL-PMG method, the results reveal the existence of a long-run association among product market competition, firm size and productivity growth for the full sample and for subsamples, categorizing relatively efficient and inefficient firms, and innovative and non-innovative firms. From the panel VECM Granger causality test, it has been observed that there is the long-run feedback relationship among these three variables. The empirical evidence suggests that as the intensity of competition becomes stronger and the firm-specific capabilities expand, they impart improved productivity via within and between firm effects. This draws some major implications for policymakers to embrace more competitive prone policies along with encouragement to firm specificities to realise value-added productivity. JEL: C33, D24, L11, L60

Product Market Competition’s Effect on Earnings Management When Audit Quality Is Endogenous: Theory and Evidence

2019 ◽  
Vol 15 (3) ◽  
Author(s):  
Andrew Samuel ◽  
Jeremy Schwartz
Keyword(s):  
Earnings Management ◽  
Audit Quality ◽  
Structural Parameters ◽  
Market Competition ◽  
Product Market ◽  
Product Market Competition ◽  
Theoretic Model ◽  
Industry Competition ◽  
Game Theoretic

Abstract A long standing question is whether product market competition disciplines a firm’s incentive to engage in earnings management. This paper argues that this question cannot be investigated adequately without accounting for the quality of firms’ auditors, because auditors affect the probability of discovering earnings management. Since firms choose their auditor, a non-compliant firm can alter its own probability of being detected. Consequently, a firm’s decision to manage earnings is a function of its auditor’s quality, which is itself endogenously chosen by the firm. To study this issue we develop a game-theoretic model that captures the potential inter-relationship between industry competition, the firms’ choice of audit quality, and compliance with accounting regulations (or the degree of earnings manipulation). We show that the link between financial compliance and product market competition is affected by the endogenously chosen audit quality. We estimate this model’s structural parameters and find that greater competition reduces both compliance and the demand for high quality audits.

Oligopoly, Disclosure, and Earnings Management

2010 ◽  
Vol 85 (4) ◽  
pp. 1191-1214 ◽  
Author(s):  
Mark Bagnoli ◽  
Susan G. Watts
Keyword(s):  
Earnings Management ◽  
Lower Cost ◽  
Market Competition ◽  
Product Market ◽  
Industry Structure ◽  
Information Environment ◽  
Product Market Competition ◽  
Total Production ◽  
Product Price ◽  
Financial Reports

ABSTRACT: We examine how biased financial reports (managed earnings) affect product market competition and how product market competition affects incentives to bias financial reports in a model with fully rational firms. We find that Cournot competitors bias their reports to create the impression that their costs are lower than they actually are. This bias leads to lower total production and a higher product price, even though each firm fully understands its rival’s incentives to bias its financial reports. The magnitude of the bias is larger when firms compete in more profitable product markets and smaller when the firm can extract more information about its rival’s costs from its own. When the costs of misreporting are asymmetric, the lower-cost firm engages in more earnings management than its rival, produces more than it would in a full-information environment, and earns greater profits. Our analysis leads to new, testable relations among earnings management, reported and actual earnings, and industry structure.

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