Accrual-Based and Real Earnings Management Activities Around Seasoned Equity Offerings

Cohen, Daniel; Zarowin, Paul

doi:10.2139/ssrn.1081939

Cited by 515 publications

(1,084 citation statements)

References 25 publications

Supporting

Mentioning

994

Contrasting

Unclassified

Order By: Relevance

“…Second, EM can hide non-managed company earnings, in which it can be harmful for company profitability and competitive advantages in the long run (Cohen & Zarowin, 2010;Zang, 2012). Therefore, EM increases information asymmetry between managers and debt security holders in relation to the current non-managed period for a company, and can therefore affect debt security holder estimates as a result of managers boosting company income.…”

Section: Issues Ding the Issue Compared To Non-issuing Onesmentioning

confidence: 99%

Debt Issues and Earnings Management

Sincerre

Sampaio

Famá

et al. 2016

Rev. contab. finanç.

View full text Add to dashboard Cite

The aim of this paper is to analyze earnings management (EM) surrounding debenture issues of companies listed on the BM&FBOVESPA. EM is an intentional intervention in external financial reports in order to obtain some private gain. This practice is especially important at the time of issuing debentures because if earnings are inflated, investors may pay an artificially high price. To measure earnings management, current discretionary accruals were used as a proxy, based on the Modified Jones and Modified Jones with ROA econometric models. All of the regressions considered the fixed effects of the companies and the time series effects of the analyses. Evidence was found that companies inflate their financial results in the issuing period in order to positively influence their investors. The results suggest that there is EM in the quarter preceding the issue (t = -1), indicating the influence that investors may have been under when making the decision to invest in debentures from these companies. In addition, it was verified that companies with higher debt, profitability, and sales growth ratios have higher levels of earnings management. The reputation of the auditor was not statistically significant regarding reductions in the level of management. The results also show that companies listed on Level II and New Market had higher levels of management when considering the Modified Jones with ROA model. Therefore, it can be concluded that there is a greater level of earnings management in companies that issue debentures in the period preceding the event. Finally, the variable that is directly related to the level of earnings management is sales growth.

show abstract

Section: Issues Ding the Issue Compared To Non-issuing Onesmentioning

confidence: 99%

Debt Issues and Earnings Management

Sincerre

Sampaio

Famá

et al. 2016

Rev. contab. finanç.

View full text Add to dashboard Cite

show abstract

“…Research has increasingly come to focus, however, on other forms of earnings management, known as operational, in which decisions taken by management have been considered more damaging to companies and market participants because they affect cash flow and not only profit (Roychowdhury, 2006). Moreover, earnings management via accruals is easier for the market, auditors and regulators to detect, compared with earnings management via operating decisions, which could thus encourage companies to use this strategy (Graham, Harvey, & Rajgopal, 2005;Cohen & Zarowin, 2010). This paper therefore focuses on the decisions managers take in order to manage particular financial results, or, in other words, management activity that alters the accounting figures disclosed.…”

Section: Introductionmentioning

confidence: 99%

“…This coefficient should be negative in Equations 4 and 5 and positive in Equation 6, since companies that manipulate financial results in order to improve them and thus avoid reporting losses will probably have abnormally low ACFO and/or ASG&A (Roychowdhury, 2006;Cohen, Dey, & Lys, 2008;Martinez & Cardoso, 2009;Cohen & Zarowin, 2010;Gunny, 2010;Zang, 2012;Cupertino, 2013). For Equation 7, consistent with Gunny (2010), an aggregate measure for the three REM proxies is constructed, and is shown in Equation 8.…”

mentioning

confidence: 99%

Evitar Divulgar Perdas: Um Estudo Empírico do Gerenciamento de Resultados por Meio de Decisões Operacionais

Reis

Lamounier

Bressan

2015

Rev. contab. finanç.

View full text Add to dashboard Cite

The aim of this paper is to verify whether Brazilian companies listed on the BM&FBOVESPA used earnings management via operating decisions, when faced with reporting unfavourable results, in order to avoid disclosing losses. Using panel data covering years from 2008 to 2013 in estimated regression models, the paper focuses on three ways of manipulating financial results through operational decisions: by manipulating sales; by reducing selling, general and administrative expenses (SG&A); and by increasing production to report lower costs of goods sold. The results show that the companies did use SG&A to avoid reporting losses, but did not manipulate sales or levels of production for such purposes. The evidence presented suggests that in Brazil managers are only able to manipulate operational activities by reducing operating expenses (SG&A), probably due a lack of flexibility in the production process and the cash flow constraints faced by Brazilian companies. From a users' perspective, this paper finds that companies do use earnings management via operating decisions to avoid disclosing losses to capital markets, which is consistent with the Prospect Theory.

show abstract

“…1 In the existing literature, the ex-post influence of capital structure and the tendency to manage earnings prior to covenant violations have been explored. Additionally, there is evidence that firms manage earnings prior to seasoned equity issues (e.g., Kim and Park 2005, Cohen and Zarowin 2010, Teoh et al 1998) and public debt issues (Liu et al 2010). We attempt to bring together these different strands of literature to determine whether refinancing pressures that are more subtle than covenant violations encourage the manipulation of accruals and whether such manipulation is affected by potential obstacles to refinancing.…”

Section: Introductionmentioning

confidence: 99%

“…Kim and Park (2005), Cohen and Zarowin (2010), and Teoh et al (1998) show that firms tend to manage earnings prior to seasoned equity issues. They attribute such managerial misbehavior to the firm's need to be attractive to equity buyers.…”

Section: Introductionmentioning

confidence: 99%

Refinancing Pressure and Earnings Management: Evidence from Changes in Short-Term Debt and Discretionary Accruals

et al. 2012

View full text Add to dashboard Cite

Refinancing pressure may entice a very specific form of managerial misbehavior on the part of borrowers. Borrowers utilizing a greater amount of short term debt in one period may feel pressure to make their firms look as attractive as possible leading into the next period when refinancing may take place. In other words, potential refinancing pressure may lead managers to manipulate earnings. We examine the relation between changes in debt in current liabilities (short-term debt) and discretionary accruals as an indicator of the propensity to manage earnings. Our results show that (i) firms have higher discretionary accruals during periods of increased short-term debt, (ii) firms have higher discretionary accruals prior to the initiation of bank loan agreements, and (iii) both of these relations are influenced by a firm's credit risk.

show abstract

Accrual-Based and Real Earnings Management Activities Around Seasoned Equity Offerings

Cited by 515 publications

References 25 publications

Debt Issues and Earnings Management

Debt Issues and Earnings Management

Evitar Divulgar Perdas: Um Estudo Empírico do Gerenciamento de Resultados por Meio de Decisões Operacionais

Refinancing Pressure and Earnings Management: Evidence from Changes in Short-Term Debt and Discretionary Accruals

Contact Info

Product

Resources

About