scholarly journals The Types of Earnings Management and Accounting Choices

2011 ◽  
Vol null (36) ◽  
pp. 297-314
Author(s):  
Jongok Lim
Keyword(s):  
Earnings Management ◽  
Accounting Choices

Accounting Discretion, Horizon Problem, and CEO Retirement Benefits

2009 ◽  
Vol 84 (5) ◽  
pp. 1553-1573 ◽  
Author(s):  
Paul Kalyta
Keyword(s):  
Firm Performance ◽  
Earnings Management ◽  
Discretionary Accruals ◽  
Pension Plans ◽  
Primary Data ◽  
Retirement Benefits ◽  
Horizon Problem ◽  
Accounting Choices ◽  
Fortune 1000 ◽  
The Impact

ABSTRACT: Empirical research on the impact of managerial retirement on discretionary accounting choices is inconclusive, with most studies finding no evidence of earnings management in the pre-retirement period. I argue that income-increasing accounting choices in final pre-retirement years are particularly appealing to managers whose pension depends on firm performance in these years. Using primary data on retired CEOs of Fortune 1000 firms, I investigate the impact of CEO pension plans on discretionary accruals. Consistent with the prediction, I find evidence of income-increasing earnings management in the pre-retirement period only when CEO pension is based on firm performance. I also report evidence of negative abnormal market reaction to CEO retirement in firms with performance-contingent CEO pensions.

The Balance Sheet as an Earnings Management Constraint

2002 ◽  
Vol 77 (s-1) ◽  
pp. 1-27 ◽  
Author(s):  
Jan Barton ◽  
Paul J. Simko
Keyword(s):  
Earnings Management ◽  
Balance Sheet ◽  
Accounting Choices ◽  
Earnings Surprises ◽  
Asset Values ◽  
Net Assets ◽  
Negative Earnings

The balance sheet accumulates the effects of previous accounting choices, so the level of net assets partly reflects the extent of previous earnings management. We predict that managers' ability to optimistically bias earnings decreases with the extent to which the balance sheet overstates net assets relative to a neutral application of GAAP. To test this prediction, we examine the likelihood of reporting various earnings surprises for 3,649 firms during 1993–1999. Consistent with our prediction, we find that the likelihood of reporting larger positive or smaller negative earnings surprises decreases with our proxy for overstated net asset values.

The effects of a public indicator of accounting aggressiveness on managers’ financial reporting decisions

2019 ◽  
Vol 34 (8) ◽  
pp. 986-1007 ◽  
Author(s):  
Erin L. Hamilton ◽  
Rina M. Hirsch ◽  
Jason T. Rasso ◽  
Uday S. Murthy
Keyword(s):  
High Risk ◽  
Earnings Management ◽  
Financial Reporting ◽  
Risk Scores ◽  
Content Type ◽  
Accounting Choices ◽  
Best Estimate ◽  
Reporting Decisions ◽  
Public Risk ◽  
Risk Metric

Purpose The purpose of this paper is to examine how publicly available accounting risk metrics influence the aggressiveness of managers’ discretionary accounting decisions by making those decisions more transparent to the public. Design/methodology/approach The experiment used a 2 × 3 between-participants design, randomly assigning 122 financial reporting managers among conditions in which we manipulated whether the company was currently beating or missing analysts’ consensus earnings forecast and whether an accounting risk metric was indicative of low risk, high risk or a control. Participants chose whether to manage company earnings by deciding whether to report an amount of discretionary accruals that was consistent with the “best estimate” (i.e. no earnings management) or an amount above or below the best estimate. Findings Aggressive (income-increasing) earnings management is deterred when managers believe such behavior will cause their firm to be flagged as aggressive (i.e. high risk) by an accounting risk metric. Some managers attempt to “manage” the risk metric into an acceptable range through conservative (income-decreasing) earnings management. These results suggest that by making the aggressiveness of accounting choices more transparent, public risk metrics may reduce one type of earnings management (income-increasing), while simultaneously increasing another (income-decreasing). Research limitations/implications The operationalization of the manipulated variables of interest may limit the study’s generalizability. Practical implications Users of accounting risk metrics (e.g. investors, auditors, regulators) should be cautious when relying on such risk metrics that may be of limited reliability and usefulness due to managers’ incentives to manipulate their companies’ risk scores by being overly conservative in an effort to prevent being labeled “aggressive”. Originality/value By increasing the transparency of the aggressiveness of accounting choices, public risk metrics may reduce one type of earnings management (income-increasing), while simultaneously increasing another (income-decreasing).

scholarly journals Efficient contracting, earnings smoothing and managerial accounting discretion

2014 ◽  
Vol 15 (1) ◽  
pp. 100-123 ◽  
Author(s):  
Mohamed Khalil ◽  
Jon Simon
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Legal Protection ◽  
Income Smoothing ◽  
Least Square ◽  
Managerial Accounting ◽  
Content Type ◽  
Accounting Choices ◽  
Trade Offs ◽  
Reported Earnings

Purpose – The purpose of this paper is to examine whether the contracting incentives (i.e. bonus plans, debt covenants, political costs hypotheses), and income smoothing can explain accounting choices in an emerging country, Egypt. Design/methodology/approach – The paper uses the ordinary least square regression model to examine the relationship between earnings management and reporting objectives. A sample of 438 non-financial firms listed on the Egyptian Exchange over the period 2005-2007 is used. Findings – The paper finds that the contracting objectives explain little of the variations in accounting choices (i.e. discretionary accruals) in the Egyptian context. However, the paper finds that mangers are likely to smooth the reported earnings by managing the accrual component in an attempt to reduce the fluctuation in reported earnings by increasing (decreasing) earnings when earnings are low (high) in attempt to reduce the variability of the reported earnings. Research limitations/implications – The empirical results rely on the ability of earnings management proxies to adequately capture earnings manipulation activities. Practical implications – The findings of the study should be of substantial interest to regulators and policy makers. The results implicitly contribute to the ongoing argument in relation to the optimal flexibility permitted by standard setting and the argument that tightening the accounting standards and mandating International Financial Reporting Standards are likely to improve reporting quality and reduce opportunistic earnings management. The results reveal that many of the weaknesses related to corporate reporting in emerging countries may result from the inadequate enforcement of the law and the weak legal protection of minority shareholders. The results also highlight the crucial role of understanding the reporting incentives, which is mainly shaped by institutional and market forces and the legal environment, in explaining accounting choices. Originality/value – Unlike previous studies that tested an individual objective, this study examines the trade-offs among various reporting objectives in an emerging economy.

scholarly journals The Deliberate Engagement of Narcissistic CEOs in Earnings Management

2019 ◽  
Vol 167 (4) ◽  
pp. 663-686 ◽  
Author(s):  
Frerich Buchholz ◽  
Kerstin Lopatta ◽  
Karen Maas
Keyword(s):  
Earnings Management ◽  
Chief Executive Officers ◽  
Earnings Quality ◽  
Chief Executive ◽  
Future Earnings ◽  
Additional Information ◽  
Upper Echelons Theory ◽  
Accounting Choices ◽  
Ceo Narcissism ◽  
Executive Officers

AbstractCorroborating upper echelons theory, this study picks up the notion that narcissistic chief executive officers (CEOs) take advantage of accounting choices to enhance their firms’—and inherently their own—personal track records. Using a set of 15 indicators, reflecting the narcissistic trait of 1126 CEOs for the period 1992 to 2012, we find evidence of highly narcissistic CEOs engaging in accrual-based earnings management (ABEM). In contrast to prior research, the results show evidence not only for income-increasing but also for income-decreasing ABEM. This indicates that highly narcissistic CEOs not only strive to influence stakeholders’ perception of current performance. We conclude that they also assess their potential to influence perception of current and future earnings. The results imply that highly narcissistic CEOs’ accounting choices are driven by self-serving behavior rather than by the intention to provide additional information to the market. When earnings management techniques are used to derive personal advantage from the presentation of a firm’s earnings, the literature refers to this as a case of low earnings quality reflecting unethical behavior. Accordingly, this study contributes to the field of business ethics by showing that CEO narcissism is related to low earnings quality in that it is associated to discretionarily decreasing accruals.

scholarly journals Employee Layoffs And Earnings Management

2011 ◽  
Vol 21 (4) ◽  
Author(s):  
Steven C. Hall ◽  
William W. Stammerjohan ◽  
Gregory Cermignano
Keyword(s):  
Earnings Management ◽  
Work Force ◽  
Discretionary Accruals ◽  
Accounting Choices ◽  
Indicator Variables ◽  
Large Work ◽  
Reported Income

This paper analyzes the accounting choices of firms in periods surrounding large work-force reductions (layoffs). Layoffs provide an incentive for managers to use accounting choices to manage earnings. Accrual analysis is performed on a sample of firms that announce large layoffs. Discretionary accruals are regressed on indicator variables for years associated with large layoffs. The results indicate that firms make accounting choices to reduce reported income in the years in which they announce large layoffs.

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