An Analysis of Managerial Use and Market Consequences of Earnings Management and Expectation Management

2011 ◽  
Author(s):  
Somnath Das ◽  
Kyonghee Kim ◽  
Sukesh Patro
Keyword(s):  
Earnings Management ◽  
Expectation Management ◽  
Market Consequences

An Analysis of Managerial Use and Market Consequences of Earnings Management and Expectation Management

2011 ◽  
Vol 86 (6) ◽  
pp. 1935-1967 ◽  
Author(s):  
Somnath Das ◽  
Kyonghee Kim ◽  
Sukesh Patro
Keyword(s):  
Earnings Management ◽  
Stock Price ◽  
Structural Models ◽  
Data Availability ◽  
Expectation Management ◽  
Earnings Targets ◽  
Market Consequences ◽  
The Relationship ◽  
Jel Classifications

ABSTRACT This study examines how managers coordinate the joint use of earnings management and expectation management by estimating the relationship between these instruments and how this relationship changes as their respective constraints change. We do this by estimating structural models of the two instruments that account for the constraints on their use as well as their effects on each other. Our results suggest that managers use earnings management and expectation management complementarily when managers' ability to use earnings management is less restricted. However, as the constraints on earnings management increase, managers substitute earnings management with expectation management. Moreover, we find that the extent of expectation management influences the extent of earnings management, but not vice versa. Examining the market consequences of the use of these instruments, we find that, while there are penalties for using both earnings management and expectation management, either as complements or as substitutes, the net stock price benefit from meeting or beating earnings targets exceeds these penalties. JEL Classifications: G14; M41. Data Availability: Data are available from public sources identified in the study.

scholarly journals Practice Of Accounting Conservatism In MBE Firms

2014 ◽  
Vol 30 (6) ◽  
pp. 1785 ◽  
Author(s):  
Sang Hyun Park ◽  
Jaywon Lee
Keyword(s):  
Earnings Management ◽  
Credit Rating ◽  
Earnings Forecasts ◽  
Analyst Forecasts ◽  
Accounting Conservatism ◽  
Cost Of Debt ◽  
Management Behavior ◽  
Conservative Accounting ◽  
Expectation Management

Managers sometimes manage earnings upward (i.e., engage in earnings management) or guide analyst forecasts downward (i.e., engage in expectation management) to meet or beat analysts earnings forecasts (MBE). Our results suggest that certain management behavior to achieve MBE is highly associated with firms level of accounting conservatism. In detail, we find that (1) the level of accounting conservatism decreases as firms achieve MBE in consecutive years, (2) engaging in earnings management to achieve MBE lowers firms level of conservatism, and (3) firms that achieve MBE in consecutive years (CMBE firms) whose credit rating had been elevated practice less conservative accounting implying that the MBE string itself might act as a substitute for conservative accounting in lowering firms cost of debt.

How Does Intentional Earnings Smoothing Vary With Managerial Ability?

2017 ◽  
Vol 35 (2) ◽  
pp. 406-437 ◽  
Author(s):  
Peter Demerjian ◽  
Melissa Lewis-Western ◽  
Sarah McVay
Keyword(s):  
Earnings Management ◽  
Capital Market ◽  
Operating Performance ◽  
Informed Trading ◽  
Executive Turnover ◽  
High Ability ◽  
Managerial Ability ◽  
Earnings Smoothing ◽  
Market Consequences ◽  
Do So

We investigate if high-ability managers are more likely to intentionally smooth earnings, a form of earnings management, and when they are more likely to do so. Although prior studies provide evidence that high-ability managers report higher quality earnings, the literature does not indicate whether this behavior is common because of (or happens in spite of) high-ability managers’ intentional smoothing activities. We find that (a) high-ability managers are significantly more likely to engage in intentional smoothing, (b) their intentional smoothing is associated with improved future operating performance, and (c) their intentional smoothing is more prevalent when the smoothing either benefits shareholders, the manager, or both. We do not, however, find evidence that high-ability managers who smooth are more likely to have engaged in informed trading or are more likely to consume perquisites. High-ability managers’ intentional smoothing is also associated with increased voluntary (but not forced) executive turnover, consistent with high-ability managers being motivated, at least in part, by how the capital market consequences of smoothing are expected to benefit shareholders, thereby bolstering their reputation.

Individual Large Shareholders, Earnings Management, and Capital-Market Consequences

2016 ◽  
Vol 43 (7-8) ◽  
pp. 872-902 ◽  
Author(s):  
Yiwei Dou ◽  
Ole-Kristian Hope ◽  
Wayne B. Thomas ◽  
Youli Zou
Keyword(s):  
Earnings Management ◽  
Capital Market ◽  
Large Shareholders ◽  
Market Consequences

Pengaruh Hubungan Politik Terhadap Manajemen Laba Pada Perusahaan Sektor Jasa Dengan Variabel Kontrol Ukuran Perusahaan Dan Kualitas Audit

2018 ◽  
Vol 16 (2) ◽  
pp. 30
Author(s):  
Dwikky Darmawan ◽  
Weny Putri
Keyword(s):  
Earnings Management ◽  
Firm Size ◽  
Significant Influence ◽  
Service Sector ◽  
Audit Quality ◽  
Stock Exchange ◽  
Secondary Data ◽  
Annual Reports ◽  
Political Connection ◽  
Discretionary Accrual

The purpose of this study is to determine the effects of political connection toward the earnings management of service sector companies with control variables firm size and audit quality. Firm�s political connection measured by using dummy variable. Earnings management is proxied by discretionary accrual which is measured by using Modified Jones Model. The research data applied in this study are the secondary data which are taken from the annual reports of service sector companies that listed in Indonesian Stock Exchange of 2016-2017 periods. There are 330 observations fit as sample, which are taken by using purposive sampling method. Data are processed by applying the multiple linear regression test. The result show that the political connection had positive but not significant influence to earnings management. Firm size had negative but not significant influence to earnings management. Whereas the audit quality had a negative and significant influence to earnings management.

The relation between R&D accounting treatment and the risk of the firm: Evidence from the Italian market

2014 ◽  
pp. 33-54 ◽  
Author(s):  
Riccardo Cimini ◽  
Alessandro Gaetano ◽  
Alessandra Pagani
Keyword(s):  
Earnings Management ◽  
Fiscal Year ◽  
Investment Strategies ◽  
Capital Assets ◽  
Italian Market ◽  
D Investment ◽  
Firm Evidence

In this paper, we investigate the relation between the different accounting treatments of R&D expenditures and the risk of the entity in order to identify under which treatment insiders are more likely to carry out earnings management. By analysing the R&D investment strategies of a sample of 137 listed Italian entities that complied with the requirements of IAS 38 during fiscal year 2009, following Lantz and Sahut (2005), we calculate several indexes that show the preferences of insiders to account R&D expenditures as costs or capital assets, and we study the relation of such preferences with the risk of the entity, which we measure with the unlevered beta. We hypothesize that the entities, which considered the R&D investments as costs, are the riskiest ones due to the higher probability that insiders carried out earnings management. Our results confirm such hypothesis. This paper could have implications for academics and standard setters that could learn that behind accounting discretion, insiders could opportunistically behave against outsiders.

Sign in / Sign up

Export Citation Format

Share Document