Download or read book Real Earnings Management REM and Accrual Earnings Management AEM Around Seasoned Equity Offerings SEOs in Australia and Subsequent Operating Earnings Performance written by Darren Henry and published by . This book was released on 2013 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper examines the existence of real earnings management (REM) and accrual earnings management (AEM) around seasoned equity offerings (SEOs) undertaken by Australian firms. We also investigate the subsequent operating earnings performance of the SEO firms that engaged in earnings manipulation and undertake SEOs. Prior studies document the presence of earnings management using univariate tests; however, we provide the first evidence employing both univariate and multivariate tests of the existence and consequences of REM and AEM around the SEOs. We find that managers of Australian SEO firms tend to engage in REM and AEM in the SEO-years, and earnings management activity is greater in these years relative to non-SEO firms and in comparison to the non-issuing years of SEO firms. In addition, consistent with prior evidence, we find that SEO firms performs substantially negatively in the post-SEO period, and SEO firms that engaged in REM and/or AEM underperform significantly those that don't in the post-offering period. However, we document a non-linear earnings management effect, with SEO firms that engaged in greater levels of REM and undertake SEOs having significantly higher subsequent operating performance.
Download or read book Accrual Based and Real Earnings Management Activities Around Seasoned Equity Offerings written by Daniel A. Cohen and published by . This book was released on 2008 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine earnings management behavior around SEOs, focusing on both real activities and accrual-based manipulation. Although research has addressed the issues of earnings management around SEOs and earnings management via real activities manipulation, ours is the first paper to put these two issues together. We make three contributions to the literature. First, we document that firms use real, as well as accrual-based, earnings management tools around SEOs. Second, we show how the tendency for firms to tradeoff real versus accrual-based earnings management activities around SEO s varies cross-sectionally. We find that firms choices vary predictably as a function of the firm s ability to use accrual management and the costs of doing so. Our model is a first step in examining how firms tradeoff between real versus accrual methods of earnings management. Third, we compare the economic costs of accrual versus real earnings management around SEO s, by examining the effect of each type of earnings management on the firm s future performance. We provide the first evidence on this important issue by showing that the costs of real earnings management are likely greater than the costs of accrual earnings management, at least in the SEO context.
Download or read book Real Earnings Management and Subsequent Operating Performance written by Denise Leggett and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Real Earnings Management (REM) is the manipulation of business activities to meet an earning's threshold. Despite concern that REM activities create real economic costs, research on the relation between REM and subsequent operating performance is inconclusive. In this paper, a two-firm-level method of estimating abnormal discretionary expenditures is developed and a more proactive method of identifying REM activity is implemented. Using firm-level estimates of abnormal expenditures, strong evidence of REM negatively related to subsequent period return on assets and cash flows from operations is found. The results suggest that the inconclusive results in prior research may be in part due to estimating abnormal expenditures using industry-level models.
Download or read book Earnings Management and The Post Issue Underperformance of Seasoned Equity Offerings written by Siew Hong Teoh, Ivo Welch, T.J. Wong and published by . This book was released on 1995 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Earnings Around Seasoned Equity Offerings written by Srinivasan Rangan and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper documents significant earnings management around seasoned equity offerings. I find that discretionary accruals are positive and significant in the quarter preceding, the quarter of, and the quarter following the announcement of the offering. Additional tests that control for the endogeneity of the decision to issue equity confirm that earnings are managed in direct response to the decision to issue equity in the quarter preceding the announcement of the offering. Consistent with recent research, I find that offering firms experience poor stock price and earnings performance in the three year period subsequent to the offering. I then show that (i) the subsequent earnings declines can be predicted using the magnitude of accruals management at the time of the offering and (ii) a portion of the post-offering stock price declines are related to the predictable earnings declines. My results therefore suggest that at least a portion of the anomalous post-offering stock performance reflects the stock market's inability to unravel accruals management around the time of the offering. Data Availability: The list of firms that made seasoned offerings and the offering announcement dates are available from the author. The rest of the data used in this study are publicly available from sources identified in the paper.
Download or read book Real Earnings Management by Benchmark Beating Firms written by Brooke Beyer and published by . This book was released on 2018 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior studies document both an improvement and deterioration in the future operating performance of firms engaging in real earnings management (REM) to meet earnings benchmarks. These results suggest that some firms use REM to signal their favorable prospects, whereas others use REM opportunistically. We hypothesize that firms with less robust information environments, more costly REM, and fewer incentives to meet short-term earnings benchmarks are more likely to engage in REM to signal future performance. Consistent with expectations, we find the positive relation between REM and future profitability is limited to firms that have less robust information environments (measured with stock return volatility, bid/ask spread, and analysts following), more costly REM (measured with market share and financial health), and fewer incentives to meet short-term earnings benchmarks (measured with market-to-book ratio, transient investors, and seasoned equity offering). In supplementary analysis, we note that Bhojraj et al. (2009) restrict their sample to relatively large firms, whereas Gunny's (2010) sample includes both large and small firms. Our analysis indicates that the difference in sample composition explains the differing results. We find that small firms use REM to signal positive future performance, but large firms do not.
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 What are the Consequences of Real Earnings Management written by Katherine Ann Gunny and published by . This book was released on 2005 with total page 204 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Valuation Earnings Management and the Underperformance of Loss Seasoned Equity Offerings written by Fernando Comiran and published by . This book was released on 2018 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: The current literature on earnings management around seasoned equity offerings (SEOs) mainly concentrates on discretionary accruals, and considers all SEOs as a homogenous pool of firms. The uniqueness of this paper is in linking firms' valuation to their discretionary choices and by demonstrating that loss firms do not manage earnings during SEOs as earnings are not informative for their valuation. We find that loss firms overinvest in R&D around SEOs, because R&D expenditures are the main value-driver for loss SEOs. We further show that overinvestment in R&D is negatively associated with future operating performance for loss firms.
Download or read book The Effect of the Need for Subsequent Seasoned Equity Offerings on Earnings Management Motivation written by Moshe Hagigi and published by . This book was released on 2018 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Several previous studies have discussed the differential market reaction to Seasoned Equity Offerings (SEOs) which were issued at different frequencies and in different sequences. We explore an additional aspect to this issue. We have attempted to study the impact of the need for subsequent SEOs on the managerial motivation to manage earnings. We hypothesize that those firms with less of a need for subsequent equity issuances are more likely to engage in “income-increasing” earnings management (EM) prior to their equity issuances. Conversely, equity issuers with more of a need for subsequent equity issuances would be more concerned about the potential impact of current EM on their future reported earnings and therefore would be less likely to manage earnings. Using data from U.S. companies during the period 1984-2014, we find that the level of income-increasing abnormal accruals around equity issuance is negatively related to their need for subsequent equity issuance. These results are consistent with the assumption that firms which have financing need plan not only for the current equity issuance but also for issuances in the near future.
Download or read book Earnings Management Corporate Governance and the Market Performance of Seasoned Equity Offerings written by Michael Firth and published by . This book was released on 2002 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines whether pre-issue discretionary current accruals predict post-issue earnings performance and returns. We find evidence suggesting that offering firms borrow future income to manage earnings in pre-issue years and consequently earnings decrease in post-issue year 2. The information content of pre-issue discretionary current accruals is reflected in one-year buy and hold abnormal returns for the rights offering firms. Our paper also examines whether the incidence of earnings management around SEOs depends on corporate governance structures. Our results show that SEO firms that have larger board size have a higher degree of earnings management around SEOs. This result is consistent with Jensen's (1993) view that smaller boards provide more of a controlling function than do larger boards.
Download or read book Earnings Management and the Post Issue Underperformance of Seasoned Equity Offerings written by Siew Hong Teoh and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Loughran and Ritter (1995) document that firms issuing seasoned equity offerings (SEOs) severely underperform the stock market for three to five years after the offering. Our paper examines the hypothesis that SEO investors are too optimistic because they naively extrapolate earnings trends without fully adjusting for observable discretionary managerial reporting choices. We find that aggressive firms, which report high pre-SEO earnings at the expense of post-SEO earnings by taking high discretionary pre-issue accruals, subsequently performed worse (abnormal stock returns and industry-adjusted net income). Aggressive quartile firms earned a highly significant-48% four-year cumulative abnormal return; conservative quartile firms earned an insignificant-7% four-year cumulative abnormal return. In contrast with discretionary accruals, pre-issue non-discretionary accruals did not predict post SEO returns. This paper is also available at the following web address: ftp://next.agsm.ucla.edu/academic.finance/mngseo.ps ftp://next.agsm.ucla.edu/academic.finance/mngseo.hp If you have any questions concerning downloading, please contact Professor Teoh.
Download or read book Consequences of Real Earnings Management on Subsequent Operating Performance written by Gary K. Taylor and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using three criteria, we identify firms that may have engaged in real earnings management. We then investigate whether real earnings management activities lead to a significant decline in these firms' subsequent operating performances. Our test results demonstrate that firms identified as conducting real earnings management activities do not experience a significant decline in subsequent operating performance. The finding enhances our understanding of the process through which management evaluates the costs and benefits of real earnings management and helps address concerns about costs of the increase in real earnings management activities that arose due to the heightened accounting regulation implemented by the Sarbanes-Oxley Act.
Download or read book Real Earnings Management and Long Term Operating Performance written by Patrick Vorst and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I examine whether a reversal of an abnormal cut in discretionary investments is associated with the degree to which the cut is reflective of real earnings management (REM) and whether and how it predicts future operating performance. I define a reversal as occurring when a firm cuts discretionary investments to a below-expected level in one period and reverts back to at least the expected level of investment during the next period. Unlike accrual earnings management, REM involves deliberately altering the operations of the firm to influence reported accounting numbers. To the extent that such interventions diverge from optimality, they can expose the firm to real economic costs. I find that a reversal of an abnormal cut in discretionary investments in the year after the cut has taken place is indicative of REM. I further find that, on average, reversing cuts are associated with lower future operating performance, but that such results vary significantly depending on the various incentives to engage in REM, as well as other factors that affect its associated costs and benefits. These findings are of interest to investors, regulators and academics with respect to the identification and consequences of REM.
Download or read book Earnings Management Around Seasoned Equity Offerings written by Lakshmanan Shivakumar and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines earnings management around seasoned equity offerings. Consistent with managers managing earnings, I find offering firms to have temporarily high earnings around the offering. The temporary increase in earnings around the offering appears to be primarily driven by abnormally high accruals in the period. By relating my estimates of abnormal accruals to the incentives and abilities of managers to manage earnings, I show that these abnormal accruals result from earnings management. Further, this analysis shows that the ability to manage earnings is constraining mainly for managers with high incentives to manage earnings. Also, I argue that the announcement of an equity offering signals earnings management in prior quarters to the market, which would result in a negative price reaction to the announcement. Consistent with this argument, I show that the earnings management before an offering announcement partly explains the negative market reaction to the announcement.
Download or read book Earnings Management and the Post Issue Underperformance in Seasoned Equity Offerings written by Siew Hong Teoh and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Loughran and Ritter (1995) document that firms issuing seasoned equity offerings (SEOs) severely underperform the stock market for three to five years after the offering. Our paper examines the hypothesis that SEO investors are too optimistic because they naively extrapolate earnings trends without fully adjusting for observable discretionary managerial reporting choices. We find that aggressive firms, which report high pre-SEO earnings at the expense of post-SEO earnings by taking high discretionary pre-issue accruals, subsequently perform worse (abnormal stock returns and industry-adjusted net income). Aggressive quartile firms earned a highly significant-50% four-year cumulative abnormal return; conservative quartile firms earn an insignificant-7% four-year cumulative abnormal return. In contrast with discretionary accruals, pre-issue non-discretionary accruals did not predict post-SEO returns.
Download or read book Real Earnings Management and Accrual Based Earnings Management in Family Firms written by Ann-Kristin Achleitner and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the effects of family firms on real earnings management (REM) and accrual-based earnings management (ABEM). Using socioemotional wealth (SEW) as a theoretical framework and considering the different implications of REM and ABEM on family firms' transgenerational sustainability, we hypothesize and find for a sample of 402 German listed family firms during 1998-2008, that family firms engage less in REM and exhibit more earnings-decreasing ABEM policies as compared to a sample of 436 non-family firms. We further provide evidence that family firms as compared to non-family firms treat REM and ABEM as substitute rather than complementary tools for earnings management. Overall, our findings suggest that family firms use earnings management activities strategically, avoiding those that inhibit the firm's long-term value (i.e. REM) and engaging in those that help families retain transgenerational control (i.e. ABEM).
