Earnings management, lawsuits, and stock-for-stock acquirers’ market performance

Gong, Guojin; Louis, Henock; Sun, Amy X.

doi:10.1016/j.jacceco.2008.03.001

Cited by 152 publications

(114 citation statements)

References 62 publications

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“…find that the likelihood of litigation increases with restatements, and Lev, Ryan, and Wu (2008) find that a restatement that depicts a different pattern of earnings than was previously reported is associated with a greater likelihood of shareholder litigation. Gong, Louis, and Sun (2008) and DuCharme, Malatesta, and Sefcik (2004) exploit high-risk settingsstock-for-stock swaps and IPOs and SEOs, respectively -to examine whether abnormal accruals are associated with litigation propensity. They find a positive association between abnormal accruals in the period leading up to the transactions and post-transaction litigation.…”

Section: Non-market Consequences Of Earnings Qualitymentioning

confidence: 99%

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

Dechow

Schrand

2010

Journal of Accounting and Economics

2,982

1,595

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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...

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Section: Non-market Consequences Of Earnings Qualitymentioning

confidence: 99%

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

Dechow

Schrand

2010

Journal of Accounting and Economics

2,982

1,595

View full text Add to dashboard Cite

show abstract

“…A cross-sectional industry-performance-matched accruals model is used in this study, similar to the research designs of Louis (2004), Gong et al (2008) and Atieh and Hussain (2012). The industry-performance matching procedure is achieved in this model by building matching portfolios using the universe of firms in each quarter.…”

Section: Earnings Management Proxymentioning

confidence: 99%

“…Before ranking firms portfolios into quintiles, three procedures are followed for stronger robustness and to reduce measurement error at this stage (Gong et al, 2008); discarding the universe outliers represented by observations that have the highest and the lowest 0.1 percent ROA, dismissing each observation with the absolute value of current accruals divided by lagged total assets greater than one (| / −4 | > 1) to reduce the likelihood of including observations with extreme values due to improper data entry in the database, and finally excluding portfolios with less than 20 observations. Each portfolio of peer firms is used as a firm's control in order to estimate the parameters that are used in calculating the expected current accruals for each firm in the same portfolio.…”

Section: Earnings Management Proxymentioning

confidence: 99%

“…Deals in which any acquirers or targets in the financial sector (SIC code between 6000-6999) are excluded. This is a common practice in the literature since the financial sector is subject to special regulations (see, for example, Erickson and Wang, 1999;Gong et al, 2008); 4. The deal value should be greater than or equal to $1 million to exclude all deals of negligible sizes, in which the economic incentive to manage earnings is less likely (Erickson and Wang, 1999); 5.…”

Section: Sample Constructionmentioning

confidence: 99%

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Event-specific earnings management: additional evidence from US M&A pre-and post-SOX

Alsharairi

Dixon

Al-Hamadeen

2017

JFRA

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Additional information: Use policyThe full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. We re-examine the motivation to manage earnings in US M&As, by investigating whether the enactment of SOX has affected pre-merger earnings management. Using a sample of over 700 completed M&As of US public firms during 1999-2008. Using quarterly reports, we track-down earnings management during the four quarters preceding the deal and consequently draw inferences about the implications of SOX on interim reporting practices. We find evidence of earnings management by non-cash acquirers, especially during the two to three quarters prior to the announcement date; this practice is more pronounced in the post-SOX period, suggesting that SOX simply lead to an earlier exercise of pre-merger earnings management. More interestingly, we reveal significant upward earnings management by targets in the last quarter prior to the deal, but only during the post-SOX era.

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“…While managing earning, management of the company knows clearly that the goal is to protect the interests of company against the owners of even in other cases. Earning management if for getting the allocated reward due to the maintain the company against profit owners [15].…”

Section: Introductionmentioning

confidence: 99%

The Effect of the Global Financial Crisis on Earning Management in Tehran Stock Exchange (Evidence From of the Products of Petroleum and Chemical Industry)

Rezaei¹,

Zh²

2016

J Bus Fin Aff

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Earnings management, lawsuits, and stock-for-stock acquirers’ market performance

Cited by 152 publications

References 62 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

Event-specific earnings management: additional evidence from US M&A pre-and post-SOX

The Effect of the Global Financial Crisis on Earning Management in Tehran Stock Exchange (Evidence From of the Products of Petroleum and Chemical Industry)

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