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Earnings Management (earning + management)
Selected AbstractsEARNINGS MANAGEMENT IN ENGLISH NHS HOSPITAL TRUSTSFINANCIAL ACCOUNTABILITY & MANAGEMENT, Issue 4 2007Joan Ballantine In this paper we review the financial reporting incentives associated with the requirement to breakeven for English NHS Trusts. We also investigate the distribution of reported income and estimate discretionary accruals thereby contributing to the limited literature on earnings management in not-for-profit hospitals. We find that Trust managers use discretion over accruals to report income within the target range around zero. The results are robust to recent challenges to earnings management explanations arising from the use of distributional and aggregate accruals methodologies. Our findings indicate that a precise and challenging financial breakeven target based on current cost residual income is associated with wide-spread use of discretionary accruals to an extent that weakens the accountability of NHS Trusts. [source] Market Consequences of Earnings Management in Response to Security Regulations in China,CONTEMPORARY ACCOUNTING RESEARCH, Issue 1 2005IN-MU HAW Abstract Under the 1996-98 security regulations in China, the accounting rate of return on equity (ROE) has to be greater than 10 percent for three "consecutive" years for a firm to qualify for stock rights offers. Despite declining economic conditions during this period, the percentage of firms reporting ROE between 10 and 11 percent is about "three" times that for 1994-95. This unique regulatory environment provides a natural experimental setting for the empirical assessment of earnings-management behavior and its consequences. This study examines whether listed Chinese firms manage earnings to meet regulatory benchmarks and whether regulators and investors consider the quality of earnings in their respective regulatory and investment decisions. On the basis of a sample of listed Chinese firms from 1996 to 1998, we observe that managers execute transactions involving below-the-line items and use income-increasing accounting accruals to meet regulatory ROE targets for stock rights offerings. The firms that apply for, but fail to receive, regulatory approval manage earnings more significantly than do firms that receive approval and pair-matched control firms. Our market study also suggests that investors differentiate the quality of earnings and put less value on earnings suspected of a greater degree of management. Overall, our results imply that the regulatory bodies and investors to some extent make rational adjustments for the quality of earnings. [source] Nonaudit Services and Earnings Management: UK Evidence,CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2004MICHAEL J. FERGUSON Abstract Using a sample of UK firms for the period 1996-98, we provide empirical evidence on the relation between nonaudit services (NAS) purchase and three proxies for earnings management: (1) the likelihood that client firm accounting practices during the sample period were publicly criticized or subject to regulatory investigation; (2) the likelihood that client firms were required to restate prior financial statements or adjust current year results upon adoption of Financial Reporting Standard (FRS) No. 12, which was intended to curb opportunistic use of provisions; and (3) the mean absolute value of client discretionary working capital accruals over the sample period. The level of NAS purchase is measured, alternatively, as (1) the ratio of nonaudit to total auditor fees, (2) the natural log of NAS fees, and (3) the decile rank of a particular client's NAS fees given all NAS fees received by the audit firm practice office. With one exception, we find that all three measures of earnings management are positively and significantly associated with the three measures of NAS purchase. [source] Earnings Management to Avoid Losses and Earnings Decreases: Are Analysts Fooled?,CONTEMPORARY ACCOUNTING RESEARCH, Issue 2 2003David C. Burgstahler Abstract This paper explores whether analyst forecasts impound the earnings management to avoid losses and small earnings decreases documented in Burgstahler and Dichev 1997, whether analysts are able to identify which specific firms engage in such earnings management, and the implications for significant forecast error anomalies at zero earnings and zero forecast earnings. We use data from Zacks Investment Research 1999 and find that analysts anticipate earnings management to avoid small losses and small earnings decreases. Further, analysts are much more likely to forecast zero earnings than firms are to realize zero earnings, and analysts are unable to consistently identify the specific firms that engage in earnings management to avoid small losses. This latter inability contributes to significant forecast pessimism associated with zero reported earnings and significant forecast optimism associated with zero earnings forecasts. [source] Potential Errors in Detecting Earnings Management: Reexamining Studies Investigating the AMT of 1986,CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2001Won W. Choi Abstract In this paper we seek to document errors that could affect studies of earnings management. The book income adjustment (BIA) of the alternative minimum tax (AMT) created apparently strong incentives to manage book income downward in 1987. Five earlier papers using different methodologies and samples all conclude that earnings were reduced in response to the BIA. This consensus of findings offers an opportunity to investigate our speculation that methodological biases are more likely when there appear to be clear incentives for earnings management. A reexamination of these studies uncovers potential biases related to a variety of factors, including choices of scaling variables, selection of affected and control samples, and measurement error in estimated discretionary accruals. A reexamination of the argument underlying these studies also suggests that the incentives to manage earnings are less powerful than initially predicted, and are partially mitigated by tax and non-tax factors. As a result, we believe that the extent of earnings management that occurred in 1987 in response to the BIA remains an unresolved issue. [source] Discussion of "Potential Errors in Detection of Earnings Management: Reexamining Studies Investigating the AMT of 1986"CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2001Dan S. Dhaliwal First page of article [source] Earnings Management and Corporate Governance in Asia's Emerging MarketsCORPORATE GOVERNANCE, Issue 5 2007Chung-Hua Shen This paper studies the impacts of corporate governance on earnings management. We use firm-level governance data, taken from Credit Lyonnais Security Asia (CLSA), of nine Asian countries, in addition to the country-level governance data used in past studies. Our conclusion is as follows. First, firms with good corporate governance tend to conduct less earnings management. Second, there is a size effect for earnings smoothing, that is, large size firms are prone to conduct earnings smoothing, but good corporate governance can mitigate the effect on average. Third, there is a turning point for leverage effect, i.e. when the governance index is large, leverage effect exists, otherwise reverse leverage effect exists. It shows that a highly leveraged firm with poor governance is prone to be scrutinised closely and thus finds it harder to fool the market by manipulating earnings. Fourth, firms with higher growth (lower earnings yield) are prone to engage in earnings smoothing and earnings aggressiveness, but good corporate governance can mitigate the effect. Finally, firms in stronger anti-director rights countries tend to exhibit stronger earnings smoothing. This counter-intuitive result is different from Leuz et al. (2003). [source] The Emergence of Corporate Governance from Wall St. to Main St.: Outside Directors, Board Diversity, Earnings Management, and Managerial Incentives to Bear RiskFINANCIAL REVIEW, Issue 1 2003M. Andrew Fields Recent corporate events have brought a heightened public awareness to corporate governance issues. Much work has been accomplished to date, but it is clear that much more remains to be done. This paper provides a review of empirical research in four relevant areas of corporate governance. Specifically, the paper provides an overview of (a) the role that outside directors play in monitoring managers, (b) the emerging literature on the impact of board diversity, (c) the existence of and incentives for corporate executives to manage firm earnings, and (d) managerial incentives to bear risk. [source] Audit Quality, Corporate Governance, and Earnings Management: A Meta-AnalysisINTERNATIONAL JOURNAL OF AUDITING, Issue 1 2010Jerry W. Lin Earnings management is of great concern to corporate stakeholders. While numerous studies have investigated the effects of various corporate governance and audit quality variables on earnings management, empirical evidence is rather inconsistent. This meta-analysis identifies 12 significant relationships by integrating results from 48 prior studies. For corporate governance, the independence of the board of directors and its expertise have a negative relationship with earnings management. Similar negative relationships exist between earnings management and the audit committee's independence, its size, expertise, and the number of meetings. The audit committee's share ownership has a positive effect on earnings management. For audit quality, auditor tenure, auditor size, and specialization have a negative relationship with earnings management. Auditor independence, as measured by fee ratio and total fee, is also a deterrent to earnings management. [source] The Allowance for Uncollectible Accounts, Conservatism, and Earnings ManagementJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2010SCOTT B. JACKSON ABSTRACT We study the interrelation between conservatism and earnings management by examining the allowance for uncollectible accounts and its income statement counterpart, bad debt expense. We find that the allowance is conservative and that it has become more conservative over time. Conservatism may, however, facilitate earnings management. We find that firms manage bad debt expense downward (and even record,income-increasing,bad debt expense) to meet or beat analysts' earnings forecasts and that conservatism accentuates the extent to which firms manage bad debt expense. Further, we find that firms manage bad debt expense downward by drawing down previously recorded over-accruals of bad debt expense that have accumulated on the balance sheet. An implication of our study is that tighter limits on the amount by which firms are permitted to understate net assets may reduce their ability to manage earnings. [source] On the Relation between Conservatism in Accounting Standards and Incentives for Earnings ManagementJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2007QI CHEN ABSTRACT This paper studies the role of conservative accounting standards in alleviating rational yet dysfunctional unobservable earnings manipulation. We show that when accounting numbers serve both the valuation role (in which potential investors use accounting reports to assess a firm's expected future payoff) and the stewardship role (in which current shareholders rely on the same reports to monitor their risk-averse manager), current firm owners have incentives to engage in earnings management. Such manipulation reduces accounting numbers' stewardship value and leads to inferior risk sharing. We then show that risk sharing, and hence contract efficiency, can be improved under a conservative accounting standard where, absent earnings management, accounting earnings represent true economic earnings with a downward bias, compared with under an unbiased standard where, absent earnings management, accounting earnings represent true economic earnings without bias. [source] Earnings Management through Transaction Structuring: Contingent Convertible Debt and Diluted Earnings per ShareJOURNAL OF ACCOUNTING RESEARCH, Issue 2 2005CAROL MARQUARDT ABSTRACT In this article we examine whether firms structure their convertible bond transactions to manage diluted earnings per share (EPS). We find that the likelihood of firms issuing contingent convertible bonds (COCOs), which are often excluded from diluted EPS calculations under Statement of Financial Accounting Standard (SFAS) 128, is significantly associated with the reduction that would occur in diluted EPS if the bonds were traditionally structured. We also document that firms' use of EPS-based compensation contracts significantly affects the likelihood of COCO issuance and find weak evidence that reputation costs, measured using earnings restatement data, play a role in the structuring decision. These results are robust to controlling for alternative motivations for issuing COCOs, including tax and dilution arguments. In addition, an examination of announcement returns reveals that investors view the net benefits and costs of COCOs as offsetting one another. Our results contribute to the literature on earnings management, diluted EPS, financial reporting costs, and financial innovation. [source] The Effect of Earnings Forecasts on Earnings ManagementJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2002Sunil Dutta We develop a theory of the association between earnings management and voluntary management forecasts in an agency setting. Earnings management is modeled as a "window dressing" action that can increase the firm's reported accounting earnings but has no impact on the firm's real cash flows. Earnings forecasts are modeled as the manager's communication of the firm's future cash flows. We show that it is easier to prevent the manager from managing earnings if he is asked to forecast earnings. We also show that earnings management is more likely to follow high earnings forecasts than low earnings forecasts. Finally, our analysis shows that shareholders may not find it optimal to prohibit earnings management. Earlier results rationalize earnings management by violating some assumption underlying the Revelation Principle. By contrast, in our model the principal can make full commitments and communication is unrestricted. Nonetheless, earnings management can be beneficial as it reduces the cost of eliciting truthful forecasts. [source] The Association between External Monitoring and Earnings Management in the Property-Casualty Insurance IndustryJOURNAL OF ACCOUNTING RESEARCH, Issue 2 2001Jennifer J. Gaver This paper examines the association between external monitoring and earnings management by property-casualty insurers. We extend previous work by Petroni and Beasley (1996) by expanding the set of external monitors to include both auditors and actuaries. We investigate whether certain auditor-actuary pairs are associated with less understatement of the loss reserve account by financially struggling insurers. Our data consist of loss adjustments reported by 465 property-casualty insurers for reserves established in 1993. The results indicate that under-reserving by weak insurers is essentially eliminated when the firm uses auditors and actuaries that are both from Big Six accounting firms. In contrast, non-Big Six actuaries have less impact on under-reserving by weak insurers. Our results suggest that the quality usually associated with Big Six auditors falls when the audit firm relies on third party actuaries to evaluate the loss reserve estimates of struggling insurance clients. We conjecture that Big Six actuaries insist on more conservative loss reserve levels because, compared to actuarial consulting firms, they are more attuned to the liability exposure of the auditor. [source] The Usefulness of Measures of Consistency of Discretionary Components of Accruals in the Detection of Earnings ManagementJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 9-10 2009Salma S. IbrahimArticle first published online: 26 OCT 200 Abstract:, Prior research has shown the prevalence of measurement error in models used to estimate aggregate discretionary accruals. In these models, the incremental information content of the various components of accruals is ignored. Limited prior research and data gathered from firms under Securities and Exchange Commission (SEC) litigation indicate that managers use either one or more than one component of accruals simultaneously, in a consistent way to manipulate bottom-line earnings in a given direction. I propose two measures that capture the consistency between the discretionary components of accruals and test their significance in earnings management (EM) detection in firms that have artificially added accrual manipulation and firms that were targeted by the SEC for accrual manipulation. There is evidence that this information is incrementally useful in detecting EM. This finding paves the way for improvements in the discretionary accruals measure by including consistency information from the components of aggregate accruals. [source] Insider Trading and Earnings ManagementJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 3-4 2008Julia Sawicki Abstract:, This paper analyzes the relationship between earnings management and insider trading, specifically investigating whether discretionary accruals are related to insider trading and valuation. We find strong evidence of insiders managing earnings downward when buying and managing earnings upward when selling. On the marginal basis, value (high book-to-market value) firms manage their earnings upward compared to growth (low book-to-market value) firms, consistent with a signaling hypothesis. However, the opposite is true on the average basis, consistent with an opportunistic hypothesis. [source] The Influence of Takeover Protection on Earnings ManagementJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 3-4 2008Yijiang Zhao Abstract:, We examine the relationship between takeover protection and earnings management. Existing theories suggest two contradictory effects of takeover protection on opportunistic earnings management: entrenchment theory suggests an exacerbating effect, whereas both alignment theory and quiet life theory posit a mitigating effect. We find that takeover protection is associated with lower levels of abnormal working capital accruals, lower levels of performance-adjusted abnormal accruals and timelier recognition of losses. Further tests show that takeover protection is associated with lower firm value, which contradicts alignment theory but supports quiet life theory. The results suggest that takeover protection allows managers to enjoy the quiet life and thus mitigates earnings management. [source] The Timing of Asset Sales: Evidence of Earnings Management?JOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 7-8 2002Geoffrey Poitras This paper presents empirical evidence from a sample of publicly traded Singaporean firms on the question: to what extent do firms manage earnings through the timing of asset sales? Previous studies have focused on accounting motives behind asset sales, ignoring the need to also consider economic motives. Some empirical evidence is provided to support the hypothesis that managers of firms with decreasing net earnings,per,share smooth earnings upwards using asset sales. [source] The Provision of Tax Services by Incumbent Auditors and Earnings Management: Evidence from KoreaJOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 1 2009Won-Wook Choi This study examines the associations between the provision of tax services by incumbent auditors and earnings management. We investigate whether three different effects of tax service provision play different roles in accounting practices. The three effects include the audit independence effect, the knowledge spillover effect, and the tax avoidance effect. If the provision of tax services by incumbent auditors harms auditor independence, firms may exercise greater earnings management (audit independence effect). However, if incumbent auditors gain incremental knowledge by offering tax services, the quality of their audit services could be enhanced, and therefore, reported earnings could be more conservative (knowledge spillover effect). If tax service fee leads to low taxable income, it could depress book income when book-tax conformity is high (tax avoidance effect). We find that the provision of tax services generally improves earnings quality by curtailing opportunistic accounting practices. The results also suggest that the negative association between the provision of tax services and discretionary accruals seems to be primarily driven by the knowledge spillover effect as opposed to the tax avoidance effect. Additional analysis is conducted in examining whether the tax avoidance effect exists in a sub-sample. [source] Rights Issues in the Chinese Stock Market: Evidence of Earnings ManagementJOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 2 2008Hung-Gay Fung Using 665 rights offerings of Chinese firms, we demonstrate positive but diminishing price effects of successive announcements at the board meeting, the shareholders' meeting, the prospectus release date, and the ex-rights date, but negative abnormal returns before the ex-rights date. Public investors value the participation from shareholders of state and legal-person shares in the rights offerings, which seem to be linked to the future firm performance. The results overall supports the hypothesis that Chinese company earnings are considerably manipulated in the rights issue process. [source] Insider Trading, Earnings Management and Corporate Governance: Empirical Evidence Based on Hong Kong FirmsJOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 3 2007Bikki Jaggi We document positive association between earnings management and insider selling after the fiscal year-end for Hong Kong firms. This positive association is especially evident before the 1997 Asian Financial Crisis. Our findings suggest that Hong Kong executives manage reported earnings to maximize their private benefits from insider selling. Additionally, we find that a higher proportion of independent directors (INED) on corporate boards moderate the positive association between insider selling and earnings management. Stricter monitoring of earnings management by INED is especially evident when no member of the family with majority ownership is present on corporate boards as a director. This suggests that the presence of family members with majority ownership on corporate boards significantly reduces INED's monitoring effectiveness. Our findings suggest that strict regulations are needed to control insider trading, and independence of corporate boards is important for monitoring of earnings management associated with insider trading. Furthermore, appointment of family members with majority shareholdings should be avoided to enhance independence and to monitor effectiveness of corporate boards. [source] Earnings Management to Influence Tax Policy: Evidence from Large Malaysian FirmsJOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 2 2005Ajay Adhikari This study investigates the link between effective tax rates (ETR) and earnings management in a non-Western context. It examines the use of accounting choice by Malaysian firms in response to an anticipated change in tax policy. We predict and find that large Malaysian firms with low effective tax rates decrease book income prior to a reduction in corporate tax in order to influence tax policy. Our empirical results are consistent with prior evidence in the US, that firms use accounting choice to realize economic objectives. The Malaysian evidence suggests that the result of a positive association between ETR and earnings management can be generalized outside the US context. [source] Earnings management following chief executive officer changes: the effect of contemporaneous chairperson and chief financial officer appointmentsACCOUNTING & FINANCE, Issue 2 2010Mark Wilson M40; M41 Abstract Using a sample of listed Australian firms from 1999 to 2007, we examine the relationship between discretionary accruals and concurrent senior management appointments. Employing panel data regression models and focusing on a measure of discretionary accruals that excludes the effect of transparent write-downs such as restructuring charges, we find that chief executive officer (CEO) appointments, as a general phenomenon, are not significantly associated with opaque earnings management in the year of appointment or the following year. However, we find that CEO changes accompanied by a concurrent change in board chairperson are associated with significant income-decreasing earnings management in the year of appointment. We detect no significant relationship between contemporaneous CEO and chief financial officer changes and discretionary accruals. We find no evidence of earnings management in the first compete financial period following CEO appointment, regardless of whether or not concurrent Chair or chief financial officer appointments occurred. [source] Audit Quality, Corporate Governance, and Earnings Management: A Meta-AnalysisINTERNATIONAL JOURNAL OF AUDITING, Issue 1 2010Jerry W. Lin Earnings management is of great concern to corporate stakeholders. While numerous studies have investigated the effects of various corporate governance and audit quality variables on earnings management, empirical evidence is rather inconsistent. This meta-analysis identifies 12 significant relationships by integrating results from 48 prior studies. For corporate governance, the independence of the board of directors and its expertise have a negative relationship with earnings management. Similar negative relationships exist between earnings management and the audit committee's independence, its size, expertise, and the number of meetings. The audit committee's share ownership has a positive effect on earnings management. For audit quality, auditor tenure, auditor size, and specialization have a negative relationship with earnings management. Auditor independence, as measured by fee ratio and total fee, is also a deterrent to earnings management. [source] The Effect of Earnings Forecasts on Earnings ManagementJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2002Sunil Dutta We develop a theory of the association between earnings management and voluntary management forecasts in an agency setting. Earnings management is modeled as a "window dressing" action that can increase the firm's reported accounting earnings but has no impact on the firm's real cash flows. Earnings forecasts are modeled as the manager's communication of the firm's future cash flows. We show that it is easier to prevent the manager from managing earnings if he is asked to forecast earnings. We also show that earnings management is more likely to follow high earnings forecasts than low earnings forecasts. Finally, our analysis shows that shareholders may not find it optimal to prohibit earnings management. Earlier results rationalize earnings management by violating some assumption underlying the Revelation Principle. By contrast, in our model the principal can make full commitments and communication is unrestricted. Nonetheless, earnings management can be beneficial as it reduces the cost of eliciting truthful forecasts. [source] Do Acquirers Manage Earnings Prior to a Share for Share Bid?JOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 5-6 2008Antonia Botsari Abstract:, Earnings management by acquirers ahead of share for share bids may affect whether a bid succeeds, and hence which management team controls the target's assets, as well as the distribution of gains between target and acquirer shareholders. This paper tests for such earnings management for the UK, the world's second largest takeover market, in the period 1997,2001 when M&A reached record levels and share for share deals came to account for the majority of expenditure. Using a range of approaches originating in Jones' model, the paper finds evidence consistent with earnings management ahead of share-financed bids. [source] Nonaudit Services and Earnings Management: UK Evidence,CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2004MICHAEL J. FERGUSON Abstract Using a sample of UK firms for the period 1996-98, we provide empirical evidence on the relation between nonaudit services (NAS) purchase and three proxies for earnings management: (1) the likelihood that client firm accounting practices during the sample period were publicly criticized or subject to regulatory investigation; (2) the likelihood that client firms were required to restate prior financial statements or adjust current year results upon adoption of Financial Reporting Standard (FRS) No. 12, which was intended to curb opportunistic use of provisions; and (3) the mean absolute value of client discretionary working capital accruals over the sample period. The level of NAS purchase is measured, alternatively, as (1) the ratio of nonaudit to total auditor fees, (2) the natural log of NAS fees, and (3) the decile rank of a particular client's NAS fees given all NAS fees received by the audit firm practice office. With one exception, we find that all three measures of earnings management are positively and significantly associated with the three measures of NAS purchase. [source] Earnings Management to Avoid Losses and Earnings Decreases: Are Analysts Fooled?,CONTEMPORARY ACCOUNTING RESEARCH, Issue 2 2003David C. Burgstahler Abstract This paper explores whether analyst forecasts impound the earnings management to avoid losses and small earnings decreases documented in Burgstahler and Dichev 1997, whether analysts are able to identify which specific firms engage in such earnings management, and the implications for significant forecast error anomalies at zero earnings and zero forecast earnings. We use data from Zacks Investment Research 1999 and find that analysts anticipate earnings management to avoid small losses and small earnings decreases. Further, analysts are much more likely to forecast zero earnings than firms are to realize zero earnings, and analysts are unable to consistently identify the specific firms that engage in earnings management to avoid small losses. This latter inability contributes to significant forecast pessimism associated with zero reported earnings and significant forecast optimism associated with zero earnings forecasts. [source] Potential Errors in Detecting Earnings Management: Reexamining Studies Investigating the AMT of 1986,CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2001Won W. Choi Abstract In this paper we seek to document errors that could affect studies of earnings management. The book income adjustment (BIA) of the alternative minimum tax (AMT) created apparently strong incentives to manage book income downward in 1987. Five earlier papers using different methodologies and samples all conclude that earnings were reduced in response to the BIA. This consensus of findings offers an opportunity to investigate our speculation that methodological biases are more likely when there appear to be clear incentives for earnings management. A reexamination of these studies uncovers potential biases related to a variety of factors, including choices of scaling variables, selection of affected and control samples, and measurement error in estimated discretionary accruals. A reexamination of the argument underlying these studies also suggests that the incentives to manage earnings are less powerful than initially predicted, and are partially mitigated by tax and non-tax factors. As a result, we believe that the extent of earnings management that occurred in 1987 in response to the BIA remains an unresolved issue. [source] Earnings Management and Corporate Governance in Asia's Emerging MarketsCORPORATE GOVERNANCE, Issue 5 2007Chung-Hua Shen This paper studies the impacts of corporate governance on earnings management. We use firm-level governance data, taken from Credit Lyonnais Security Asia (CLSA), of nine Asian countries, in addition to the country-level governance data used in past studies. Our conclusion is as follows. First, firms with good corporate governance tend to conduct less earnings management. Second, there is a size effect for earnings smoothing, that is, large size firms are prone to conduct earnings smoothing, but good corporate governance can mitigate the effect on average. Third, there is a turning point for leverage effect, i.e. when the governance index is large, leverage effect exists, otherwise reverse leverage effect exists. It shows that a highly leveraged firm with poor governance is prone to be scrutinised closely and thus finds it harder to fool the market by manipulating earnings. Fourth, firms with higher growth (lower earnings yield) are prone to engage in earnings smoothing and earnings aggressiveness, but good corporate governance can mitigate the effect. Finally, firms in stronger anti-director rights countries tend to exhibit stronger earnings smoothing. This counter-intuitive result is different from Leuz et al. (2003). [source] | ||||||||||||||||||||||