Depreciation-policy changes: tax, earnings management, and investment opportunity incentives

Keating, Andrew; Zimmerman, Jerold L.

doi:10.1016/s0165-4101(00)00004-5

Cited by 107 publications

(42 citation statements)

References 14 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Balsam, Haw, and Lilien (1995) suggest that firms use discretion to time the adoption of income increasing accounting methods when the firm's change in ROA is lowest. Keating and Zimmerman (1999) suggest that poorly performing firms use the discretion allowed in accounting standard adoption to their advantage. Financially weak firms also disclose more internal control weaknesses (Doyle, Ge, and McVay, 2007a) and are more likely to correct previously reported earnings, which is interpreted as ex post evidence of earnings management (Kinney and McDaniel, 1989).…”

Section: Firm Performancementioning

confidence: 99%

“…For example, Lee and Hsieh (1985), Hunt (1985), and Dopuch and Pincus (1988) document both tax (e.g., the magnitude of tax savings) and nontax explanations (e.g., contracting costs) for the choice of inventory accounting methods. Keating and Zimmerman (1999) exploit a natural experiment due to a 1981 tax law change that mitigated the impact of tax considerations on financial reporting depreciation choices and find an increase in the frequency of income-increasing depreciation estimate choices and a decrease in the frequency of incomeincreasing depreciation method changes after the 1981 tax law change. Guenther, Maydew, and Nutter (1997) exploit a change in book-tax conformity associated with the Tax Reform Act of 1986…”

Section: Tax Regulationsmentioning

confidence: 99%

See 1 more Smart Citation

Understanding earnings quality: A review of the proxies, their determinants and their consequences

Dechow

Schrand

2010

Journal of Accounting and Economics

2,978

1,595

View full text Add to dashboard Cite

Researchers have used various measures as indications of "earnings quality" including persistence, accruals, smoothness, timeliness, loss avoidance, investor responsiveness, and external indicators such as restatements and SEC enforcement releases. For each measure, we discuss causes of variation in the measure as well as consequences. We reach no single conclusion on what earnings quality is because "quality" is contingent on the decision context. We also point out that the "quality" of earnings is a function of the firm's fundamental performance. The contribution of a firm's fundamental performance to its earnings quality is suggested as one area for future work. Over the years, researchers have devised various measures of "earnings quality" to represent decision usefulness in specific decision contexts. These measures, however, have become proxies for "earnings quality" in a generic sense, absent a decision context. The result is that some papers use a proxy for earnings quality that does not match the hypothesized form of decision usefulness in their study, but they nonetheless find results that are consistent with their hypothesis. Other papers are intentionally agnostic and find robust results across multiple proxies for earnings quality. The fact that researchers find consistent and robust results across proxies suggests that there is common component to the various measures of quality, which is the firm's fundamental earnings process. Existing research does not clearly distinguish the impact of a firm's fundamental earnings process on the decision usefulness ("quality") of its earnings from the impact of the application of accounting measurement to that process. Research attention has focused on earnings management that reduces the reliability of earnings rather than on the ability of specific features of an accrual-based accounting system to provide a more decision-useful measure, conditional on the firm's fundamental earnings process. September 2009Thanks to Michelle Hanlon (the editor), Shiva Rajgopal, Terry Shevlin, Nemit Shroff, Richard Sloan, and Rodrigo Verdi for helpful comments. The framework for this review is based on Schrand's discussion of earnings quality at the April 2006 CARE Conference sponsored by the Center for Accounting Research at the University of Notre Dame. *Title Page/Author Identifier Page/Abstract 1 Understanding earnings quality: A review of the proxies, their determinants and their consequencesWe begin with a definition of "earnings quality" that sets the scope of our review. Higher quality earnings more faithfully represent the features of the firm's fundamental earnings process that are relevant to a specific decision made by a specific decision-maker. Our definition implies that the term "earnings quality" is meaningless without specifying the decision context, because the relevant features of the firm's fundamental earnings process differ across decisions and decision makers. Consistent with this broad definition, we review approximately 350 published papers on e...

show abstract

Section: Firm Performancementioning

confidence: 99%

Section: Tax Regulationsmentioning

confidence: 99%

Understanding earnings quality: A review of the proxies, their determinants and their consequences

Dechow

Schrand

2010

Journal of Accounting and Economics

2,978

1,595

View full text Add to dashboard Cite

show abstract

“…Managers' selection of depreciation methods is examined by Healy (1985), Holthousen and Larcker (1996), Barber and Lyon (1996) and Keating and Zimmerman (2000). There is no requirement that a firm use the same method for external reporting that is used in the computation of income taxes.…”

Section: Depreciation Methods Choicementioning

confidence: 99%

“…Balsam (1998) examines the aggregate effect of accounting choices on CEO compensation and determines that discretionary accounting choices do affect CEO compensation and that through judicious use of such choices managers are able in increase their compensation. Keating and Zimmerman (2000) establish that, in the presence of earnings-based compensation plans, income increasing accounting policy choices serve to decrease future net cash flows of the firm.…”

Section: Volume 30 Number 11 2004 45mentioning

confidence: 98%

Corporate control and earnings management: evidence from MBOs

Wright

Guan²

2004

Managerial Finance

View full text Add to dashboard Cite

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractUsing a matching approach and multivariate logit analysis we determine that management of firms involved in MBOs more frequently chose income increasing accounting policies than did a matched sample of non-MBO firms. The results provide support for the managerial economic incentives hypothesis as a motivation for accounting policy choices. The results of the study are consistent with a number of earlier studies such as Groff and Wright (1989), Hagerman and Zmijewski (1979) and Zmijewski and Hagerman (1981) that also find support for the managerial economic incentives hypothesis for accounting choices. DeAngelo (1986), Perry and Williams (1994) and Wu (1997) find evidence supporting the hypothesis that, in order to reduce the cost of acquiring shares from current stockholders, managers seeking to take firms private make income decreasing discretionary accruals in the period immediately prior to the MBO. In testing this theory DeAngelo (1986), Perry and Williams (1994) and Wu (1997) focus on the overall effect of a pool of business decisions and accruals made in the year immediately prior to the MBO. We theorize that managements' self-serving behavior begins far in advance of the actual MBO. The final terms of the MBO are the culmination of numerous actions and choices by management over a period longer than one year. In testing our hypotheses we focus on three specific accounting policy choices made over a period of three years leading up to an MBO and find significant evidence of self-serving behavior through the use of income increasing accounting policy choices.

show abstract

“…Одной из причин неэффективного использования основных фондов является недостаточная теоретическая и практическая разработка подходов к воспроизводству их активной части. В связи с этим весьма актуальным становится вопрос использования амортизационных отчислений в качестве собственного источника инвестиций (Веретенникова, Бикметова, 2011;Лукинов, 2015;Мазурина, 2012;Мандрощенко, 2014;Femminis, 2008;Jackson, Liu, Cecchini, 2009;Kachelmeier, Granof, 1993;Keating, Zimmerman, 1999;Terregrossa, 1997).…”

unclassified

Effective depreciation policy as the driving factor of the investment activity of industrial companies

Panova¹

2015

Ross. Pred.

View full text Add to dashboard Cite

Depreciation-policy changes: tax, earnings management, and investment opportunity incentives

Cited by 107 publications

References 14 publications

Understanding earnings quality: A review of the proxies, their determinants and their consequences

Understanding earnings quality: A review of the proxies, their determinants and their consequences

Corporate control and earnings management: evidence from MBOs

Effective depreciation policy as the driving factor of the investment activity of industrial companies

Contact Info

Product

Resources

About