Download or read book Earnings Management and Accounting Income Aggregation written by John Jacob and published by . This book was released on 2018 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: Quarterly earnings allow aggregation into annual earnings in four different ways. Fiscal year reported earnings is one of these four possible measures of annual earnings, the others being earnings for years ending at the first, second and third fiscal quarters. We provide evidence on earnings management in fiscal year earnings relative to these three alternative measures of firms' annual earnings. We confirm prior findings in Burgstahler and Dichev (1997) of discontinuities around zero and around prior year earnings in histograms of fiscal year earnings. Subsequent research questions whether these discontinuities are evidence of earnings management or whether they are attributable to biases induced by taxes, scaling and sample selection. Using the histograms of our alternative annual earnings measures, we offer additional evidence in this debate. We also find evidence of earnings management in broader intervals around thresholds. We believe that our research design is better suited to test for earnings management in these broader intervals than those used in prior studies. We also compare the statistical properties of fiscal year earnings to annual earnings starting with the fiscal year quarters two, three and four. We find that the variance and kurtosis of earnings are higher for fiscal year earnings while skewness of earnings is lower at the fiscal year. These results are more consistent with earnings management than with the effects induced by 'settling up' in fourth quarter earnings. Overall, this study contributes to the literature on the prevalence, effects of and factors associated with earnings management.
Download or read book Introduction to Earnings Management written by Malek El Diri and published by Springer. This book was released on 2017-08-20 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides researchers and scholars with a comprehensive and up-to-date analysis of earnings management theory and literature. While it raises new questions for future research, the book can be also helpful to other parties who rely on financial reporting in making decisions like regulators, policy makers, shareholders, investors, and gatekeepers e.g., auditors and analysts. The book summarizes the existing literature and provides insight into new areas of research such as the differences between earnings management, fraud, earnings quality, impression management, and expectation management; the trade-off between earnings management activities; the special measures of earnings management; and the classification of earnings management motives based on a comprehensive theoretical framework.
Download or read book Earnings quality and earnings management written by Sanjay Wikash Bissessur and published by Rozenberg Publishers. This book was released on 2005 with total page 217 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Earnings Management written by Joshua Ronen and published by Springer Science & Business Media. This book was released on 2008-08-06 with total page 587 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a study of earnings management, aimed at scholars and professionals in accounting, finance, economics, and law. The authors address research questions including: Why are earnings so important that firms feel compelled to manipulate them? What set of circumstances will induce earnings management? How will the interaction among management, boards of directors, investors, employees, suppliers, customers and regulators affect earnings management? How to design empirical research addressing earnings management? What are the limitations and strengths of current empirical models?
Download or read book Accounting based Earnings Management and Real Activities Manipulation written by Wei Yu and published by ProQuest. This book was released on 2000 with total page 126 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Earnings Management The Influence of Real and Accrual Based Earnings Management on Earnings Quality written by and published by GRIN Verlag. This book was released on 2024-01-31 with total page 81 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2019 in the subject Business economics - Accounting and Taxes, University of Duisburg-Essen, course: Master Thesis, language: English, abstract: This paper delves into various theories and approaches, aiming to define and differentiate earnings management from related concepts such as fraud, expectation management, and impression management. It explores the goals and incentives driving earnings management, including maximizing or minimizing earnings, beating targets, and smoothing. At the onset of the new millennium, corporate scandals rocked the business world, eroding trust in management, boards of directors, and the accounting profession. In response, regulations and policies aimed at enhancing corporate governance and financial reporting were swiftly implemented. The credibility, clarity, and consistency of financial reporting practices play a pivotal role in enabling investors to make informed decisions. Accurate and fair financial performance representations, as opposed to inflated and misleading figures, are essential for market players, including shareholders and creditors. Investors rely on audited financial reports to guide their investment decisions, underscoring the critical importance of accuracy and reliability in publicly available financial disclosures. Auditors, by reducing the risk of material misstatement, ensure the integrity of the information disclosed in a company's financial statements. Management, with the goal of achieving promised targets and ensuring the company's existence, may engage in earnings management as a strategic contribution to corporate policy. Financial reporting serves as a means to distinguish well-performing companies from their counterparts, facilitating efficient resource allocation and empowering stakeholders to make effective decisions. The disclosed earnings results significantly impact a firm's overall business activities and management decisions, particularly in satisfying analysts' expectations, which can influence equity value. While accounting standards play a role, the quality of financial statements is more influenced by company-specific and institutional factors shaping managers' incentives. These factors lead to financial reporting practices being viewed as the outcome of a cost-benefit assessment.
Download or read book Earnings Management written by Thomas E. McKee and published by Thomson South-Western. This book was released on 2005 with total page 224 pages. Available in PDF, EPUB and Kindle. Book excerpt: Learn how to legally manage your earnings with EARNINGS MANAGEMENT! This finance text demystifies earnings management and provides you with 28 reasonable and legal techniques. Read this text and you will gain valuable knowledge about earning management concepts and tools and gain insight into the management decisions that can shape financial statements and the underlying quality of the earnings.
Download or read book Aggregate Earnings and Why They Matter written by Ray Ball and published by . This book was released on 2015 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: The accounting literature has traditionally focused on firm-level studies to examine the capital market implications of earnings and other accounting variables. We first develop the arguments for studying capital market implications at the aggregate level as well. A central issue is that diversification makes equity investors at least partially and potentially almost completely immune to several firm-level properties of earnings by holding diversified portfolios. Diversification is particularly important when assessing the welfare consequences of random errors in accounting measurement (imperfect accruals) and, to the extent it is independent across firms, of deliberate manipulation (earnings management). Consequently, some firm-level metrics of association, timeliness, value relevance, conservatism and other earnings properties do not map easily into investor welfare. Similarly, earnings-related risk manifests itself to equity investors largely through systematic earnings risk (covariation with aggregate earnings and/or other macroeconomic indicators). We conclude that the design and evaluation of financial reporting must adopt at least in part an aggregate perspective. We then summarize the literature in accounting, economics and finance on aggregate earnings and stock prices. Our review highlights the importance of studying earnings at the aggregate level.
Download or read book Earnings Management Conservatism and Earnings Quality written by Ralf Ewert and published by . This book was released on 2012 with total page 142 pages. Available in PDF, EPUB and Kindle. Book excerpt: Earnings Management, Conservatism, and Earnings Quality reviews and illustrates earnings management, conservatism, and their effects on earnings quality in an economic modeling framework. Both earnings management and conservative accounting introduce biases to financial reports. The fundamental issue addressed is what economic effects these biases have on earnings quality or financial reporting quality. Earnings Management, Conservatism, and Earnings Quality reviews analytical models of earnings management and conservatism and shows that both can have beneficial or detrimental economic effects, so a differentiated view is appropriate. Earnings management can provide additional information via the financial reporting communication channel, but it can also be used to misrepresent the firm's position. What the authors find is that similar to earnings management, conservatism can reduce the information content of financial reports if it suppresses relevant information, but it can be a desirable feature that improves economic efficiency. The approach to study earnings management, conservatism, and earnings quality is based on the information economics literature. A variety of analytical models are reviewed that capture the effects and subtle interactions of managers' incentives and rational expectations of users. The benefit of analytical models is to make precise these, often highly complex, strategic effects. They offer a rigorous explanation for the phenomena and show that sometimes conventional wisdom does not apply. The monograph is organized around a few basic model settings, which are presented in simple versions first and then in extensions to elicit the main insights most clearly. Chapter 2 presents the basic rational expectations equilibrium model with earnings management and rational inferences by the capital market. Chapter 3 is devoted to earnings quality and earnings quality metrics used in many studies. Chapter 4 studies conservatism in accounting. Finally, the authors examine the interaction between conservatism and earnings management. Each chapter ends with a section containing a summary of the main findings and conclusions.
Download or read book Earnings Management written by Kathleen Yates and published by Nova Science Publishers. This book was released on 2016 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Earnings management is an issue that directly affects the overall integrity and quality of financial reporting and to date, many studies have been conducted in an attempt to gain an understanding of whether firms are engaging in earnings management, why they do so, what are the motives that drive managers' discretionary behaviour, what are the economic consequences and whether investors can see through this behaviour? In this book, Chapter One reviews the developments and the trends in the contemporary earnings management research and discuss several possible avenues for future research. Chapter Two provides an overview of the most recent studies on earnings management in relation to the financial crisis and the institutional environment and firm characteristics. Chapter Three provides a description of the nowadays most commonly used methods for measuring earnings management in accounting and finance literature. Chapter Four examines earnings management and corporate social responsibility as an entrenchment strategy.
Download or read book Earnings Quality written by Elisa Menicucci and published by Springer Nature. This book was released on 2019-12-21 with total page 154 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides an overview of earnings quality (EQ) in the context of financial reporting and offers suggestions for defining and measuring it. Although EQ has received increasing attention from investors, creditors, regulators, and researchers in different areas, there are various definitions of it and different approaches for its measurement. The book describes the relationship between EQ and earnings management (EM) since they can be considered related challenges, especially in the context of international financial reporting standards (IAS/IFRSs). EM occurs when managers make discretionary accounting choices that are regarded as either an efficient communication of private information to improve the informativeness of a firm’s current and future performance, or a distorting disclosure to mislead the firm’s true performance. The intentional manipulation of earnings by managers, within the limits allowed by the accounting standards, may alter the usefulness of financial reporting and lead to lower quality of earnings. The use of fair value in financial reporting has created a current debate about the impact it might have on EQ. At times, the high subjectivity in estimating fair value can allow opportunities for the exercise of management judgments and intentional bias, which can reduce the quality of financial reporting. Management discretion can result in high EM and hence in a reduction of EQ. Particularly during difficult financial periods, managers engage in EM to mask the negative effects of the turmoil, and in such circumstances accruals and earnings smoothing are attempts to reduce abnormal variations of earnings in such circumstances. This book is a valuable resource for those interested in wider perspectives on EQ and it adds to the research studies on this topic in the context of financial reporting.
Download or read book Earnings Accruals and Real Activities Management around Initial Public Offerings written by Peter Ising and published by Springer Science & Business Media. This book was released on 2013-10-06 with total page 242 pages. Available in PDF, EPUB and Kindle. Book excerpt: The beginning of the new millennium was characterized by company scandals in accounting around the world. A transparent and fair presentation of financial statements is beneficial for capital market participants. Especially around initial public offerings different incentives of these players exist to influence financial statements in diverse aspects. Therefore, studies of earnings management try to identify abnormal behavior. Peter Ising covers additional aspects to shed light on substantial drivers of discretionary reporting behavior around going public. Factors like influence on real activities, industry affiliation, and specific years in the IPO process add further insight to this theoretical and practical topic. The dependence on these factors is high and confirms that company specifics are important for interpretation of financial results.
Download or read book Detecting Earnings Management written by Stavroula Kourdoumpalou and published by . This book was released on 2019 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: Earnings management research is of interest not only to academics, but also to practitioners and regulators. A major strand of the relevant literature examines the divergent reporting incentives that managers face when reporting for tax and for financial accounting purposes. In case of conforming earnings management, firms that prefer tax aggressiveness also lower their financial accounting income, whereas firms that are aggressive in financial reporting also inflate taxable income. However, there is significant evidence that firms also take advantage of the opportunity provided by the dual reporting system (i.e., preparation of distinct reports) and simultaneously manipulate both accounting and taxable earnings (i.e., non-conforming earnings management). As the extent of earnings manipulation cannot be measured directly, a number of proxies have been developed in the literature relying on publicly available data. For the purposes of the present review, the most commonly used ones are classified into three groups: accrual models, effective tax rates and book-tax differences.
Download or read book Quarterly Earnings Management written by Demetris Christodoulou and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the systematic difference between interim and fourth quarters in managerial decisions to engage in accruals and real activities management to meet analysts' quarterly earnings forecasts. Findings reveal that managers engage in income-increasing accounting accruals manipulations during the interim quarters. Managers engage in real activities management during the final quarter, through reductions in R&D and SG&A expenditures, aggressive sales discounts and overproduction of inventory. The managerial intervention with normal levels of R&D has become increasingly common following the implementation of the Sarbanes-Oxley Act (SOX) in 2003, and occurs throughout all four quarters. In the post-SOX period, firms also engage in aggressive sales discounts and overproduction before the year-end in order to boost earnings. There is an evident managerial preference in the timing between accruals and real activities management with the former being prevalent during the interim quarters when the discretion to delay expense recognition is allowed as part of integral accounting and the auditors scrutiny is absent, and the later only taking place mostly in the final quarter given the cost of adjusting operations towards meeting short term myopic targets. The business practice of reducing R&D and SG&A spending to gain short-term financial benefits is an unintended outcome that is partially attributed to the US accounting requirements of the direct expensing of firms' internal intangible investments. The myopic investment behaviour poses a barrier to the generation and development of firms' intellectual capital and may have detrimental effects on the long-term economic advances.
Download or read book Earnings Management in the Context of Fair Value Accounting written by Changling Chen and published by . This book was released on 2013 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the late 1980s, the Financial Accounting Standards Board has implemented several new fair value accounting rules that have resulted in unrealized fair value gains or losses in net income. However, accrual-based earnings management models such as the Modified Jones Model (MJM) of Dechow, Sloan, and Sweeney (1995) and other accrual models in the literature do not consider the net income effects of fair value accounting. The fair value hierarchy of Statement of Financial Accounting Standard No. 157 implies that valuation of level 1 and level 2 instruments is subject to observable market inputs, whereas the valuation inputs of level 3 are unobservable. Therefore, with respect to earnings management, level 3 instruments are more likely to be manipulated relative to level 1 and level 2 instruments. In this paper, we adjust the MJM by adding level 1 and level 2 instruments as explanatory variables to nondiscretionary accruals; we classify net income effects of level 3 instruments as discretionary accruals in our Fair Value Adjusted Modified Jones Model (FVAMJM). We show that the FVAMJM is more powerful than the MJM in detecting earnings manipulation based on level 3 instruments and is equally good in detecting expense and revenue manipulations. In addition, the nondiscretionary accruals derived under FVAMJM have incremental explanatory power to firm market value beyond the accruals of the traditional MJM; the discretionary accruals derived under FVAMJM contribute to identifying companies meeting or beating earnings targets after controlling for MJM discretionary accruals.
Download or read book Boards at Work How Directors View their Roles and Responsibilities written by Philip Stiles and published by OUP Oxford. This book was released on 2001-03-29 with total page 182 pages. Available in PDF, EPUB and Kindle. Book excerpt: Boards of directors are coming under increasing scrutiny in terms of their contribution in monitoring and controlling management, particularly in the wake of high-profile corporate frauds and failures, and also their potential to add value to organizational performance through involvement in the strategy process and through building relationships with key investors. Despite the importance of these issues, not only to organizations but also arguably to national competitiveness, the nature of board activity remains largely a black box, clouded by prescriptions, prejudices, and half-truths. This book responds to calls for greater scrutiny of boards of directors with an in-depth examination of directors of UK organizations, drawing on the accounts of directors themselves as to their roles, influence, and the potential and limits to their power. Much work on boards of directors has labelled the board as a rubber stamp for dominant management, and non-executive directors in particular have been variously described as poodles, pet rocks, or parsley on the fish. Such accounts are rooted in assumptions of board activity that are essentially adversarial in nature, and that the solution to the 'problem' of reconciling the interests of managers with those of shareholders is to increase the checks and balances available to the board of directors. The findings of this study show that boards, in many cases, are far more than passive rubber stamps for management and that non-executives are encouraged to act as trusted advisers to the executives and the chief executive, rather than solely monitors of executive activity. Boards are important mechanisms in maintaining the strategic framework of the organization through setting the boundaries of organizational activity. The potential of the board members, in particular the non-executives, to fulfil such a mandate depends on a number of factors, including ability, willingness to engage with the organizational issues, and the degree of knowledge they have relevant to the host firm. Above all, the degree of trust built between members of the board, and between the board and key external constituencies, is at the heart of effective board behaviour.
Download or read book Earnings Aggregation and Valuation written by Keji Chen and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: Accounting valuation models have been widely studied by researchers and commonly used by practitioners. Almost all the accounting valuation models require earnings as one of the inputs (or the only input). However, one question has not been addressed: whether earnings of a longer interval or earnings of a shorter interval should be used in the valuation models. The fact that earnings can be aggregated over time and this intertemporal aggregated earnings contains fewer measurement errors is intrinsic to accounting. Although earnings aggregation is intrinsic to accounting, it has received little attention by researchers when using accounting valuation models to estimate variables of interest. Also, although there are few studies that examine the effect of earnings aggregation, these studies focus mainly on the contemporaneous explanatory power of earnings for returns. Therefore, the effect of earnings aggregation on inferring prices via accounting valuation models remains unclear, and simply aggregating earnings over a longer interval may potentially improve the estimates from the valuation models. Despite the fact that the results for the cross-sectional sample may not be encouraging, the results for the sub-samples support the expectation that earnings aggregation improves the ability of the valuation model to infer prices for some types of firms. For firms with negative earnings and for small firms, using aggregated earnings of a longer interval in the valuation model generally generates smaller errors in inferring prices than using annual earnings, and the differences between the errors can be significant. These results contribute to the understanding of the fundamental accounting attribute of earnings aggregation. More specifically, this study contributes to the valuation research insofar as the results show that it is beneficial to aggregate earnings over a longer interval when applying accounting valuation models for some specific types of firms.
