Measuring Real Activity Management

Cohen, Daniel; Pandit, Shail; Wasley, Charles E.; Zach, Tzachi

doi:10.2139/ssrn.1792639

Cited by 37 publications

(74 citation statements)

References 20 publications

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“…In particular, we measure AEM by abnormal accruals estimated from the modified Jones model with ROA as an additional control (Dechow et al, 1995;Kothari et al, 2005). Similarly, we use performance-adjusted abnormal discretionary expenditure and abnormal production costs to measure REM (Cohen et al, 2013;Roychowdhury, 2006). 6 The matched sample of regular US firms is generated by matching regular US firms with Chinese RMs based on year, industry, firm size and sales growth.…”

Section: Accepted Manuscriptmentioning

confidence: 99%

Accrual-based and real activity earnings management at the back door: Evidence from Chinese reverse mergers

Zhu

Shan

et al. 2015

Pacific-Basin Finance Journal

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Section: Accepted Manuscriptmentioning

confidence: 99%

Accrual-based and real activity earnings management at the back door: Evidence from Chinese reverse mergers

Zhu

Shan

et al. 2015

Pacific-Basin Finance Journal

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“…An advantage of matching analysis here is that it does not impose linear relationships between control variables and EM proxies. As suggested by Cohen et al (2013), the use of performance-matched REM measures is more reliable to draw the inferences of REM activities. The propensity score is obtained from a probit model similar to Equation 7 (without the lag repurchase dummies).…”

Section: Matching Analysesmentioning

confidence: 99%

Evidence for the Existence of Downward Real-Activity Earnings Management

Francis

Hasan

2015

Journal of Accounting, Auditing & Finance

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Prior studies of real-activity earnings management (REM) focus on earnings-inflating abnormal activities. We seek to establish the existence of downward REM by investigating several corporate events in which managers have incentives to temporarily deflate market valuations. Specifically, we focus on, and find downward REM before, share repurchases, management buyouts (MBOs), and CEO option awards. Large-sample evidence of downward REM is also found in our general analysis of earnings smoothing. Downward REM becomes much smaller or nonexistent when there is a lack of managerial incentives in those events, such as non-carry-through repurchases, incomplete MBOs, and unexpected option awards. Following the research design of Zang, we find that various REM and accrual-based earnings management (AEM) cost factors consistently influence the magnitude of downward REM and AEM around the three corporate events.

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“…The literature has made considerable progress in measuring accrual manipulation, but REM estimation models remain rudimentary. 1 Researchers continue to use the original models proposed by Roychowdhury (2006), despite the problems identified in recent studies (Siriviriyakul 2015;Cohen, et al 2016). 2 I investigate three questions: (1) Are REM models misspecified?…”

mentioning

confidence: 99%

Improving the measures of real earnings management

Srivastava

2019

Rev Account Stud

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Firms often change their operating policy to meet a short-term financial reporting target. Accounting researchers call this opportunistic action real earnings management (REM). They measure REM by the difference between a firm's costs and those reported by its industry peers. Firms that pursue distinct competitive strategies also display different cost patterns than peers. However, the models that measure REM do not control for differences in competitive strategy. Hence a researcher can misinterpret a cost difference that stems from a firm's competitive strategy as REM. The researcher would also find a spurious correlation between earnings management and a firm characteristic that varies with competitive strategy. A cause or effect relationship with earnings management could be wrongfully inferred. I suggest improvements in measurement models to avoid misspecification.

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Measuring Real Activity Management

Cited by 37 publications

References 20 publications

Accrual-based and real activity earnings management at the back door: Evidence from Chinese reverse mergers

Accrual-based and real activity earnings management at the back door: Evidence from Chinese reverse mergers

Evidence for the Existence of Downward Real-Activity Earnings Management

Improving the measures of real earnings management

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