Stock market listing status and real earnings management

Haga, Jesper; Höglund, Henrik; Sundvik, Dennis

doi:10.1016/j.jaccpubpol.2018.09.002

Cited by 49 publications

(28 citation statements)

References 52 publications

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“…I extend these studies by examining how accounting standards shape reporting quality in general and earnings management strategies in particular. By investigating accrual and real earnings management and showing how accounting standards determine the choice of earnings management strategy beyond firm-level costs such as financial health or audit quality, I contribute to the trade-off literature on earnings management (Zang, 2012;Haga et al, 2018). My results based on archival data also complement and test the arguments and models of prior commentaries, experiments and analytical work (Nelson et al, 2002;Nelson, 2003;Schipper, 2003;Ewert and Wagenhofer, 2005).…”

Section: Introductionmentioning

confidence: 76%

“…In terms of accrual earnings management, I observe the direction and use the signed AACC as a proxy where higher values are more income increasing. For real earnings management, I estimate abnormal cash flows from operations (ACFO) using the procedure in prior research (Roychowdhury, 2006;Haga et al, 2018). Accordingly, the reciprocal of lagged total assets, contemporaneous sales, and change in sales explain cash flows from operations (CFO) in the following regression model:…”

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confidence: 99%

“…where the dependent variable is signed (positive or negative) accrual earnings management (H2) or real earnings management (H3). The control variables remain the same with the addition of ACFO (AACC) when AACC (ACFO) is the dependent variable following Haga et al (2018). For H2 and AACC as the dependent variable, if higher reliance on principles-based standards is associated with more accrual earnings management, the coefficient on PSCORE will be positive.…”

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confidence: 99%

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The impact of principles-based vs rules-based accounting standards on reporting quality and earnings management

Sundvik

2019

JAAR

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Purpose The purpose of this paper is to explore whether principles-based vs rules-based accounting standards have an effect on measures of financial reporting quality and earnings management strategies. Design/methodology/approach This study uses a firm-year-specific variable that captures the extent to which firms’ accounting and operating behavior is affected by the characteristics of a specific standard in the USA. Measures of absolute accruals, financial misconducts, signed abnormal accruals and abnormal cash flows are used to assess the effects. Findings The results show that absolute magnitude of accruals and probability of financial misconduct is lower, and accrual earnings management is higher when firms’ standards are more based on principles. The study also suggests that potentially costlier real earnings management is a consequence of rules-based standards. Research limitations/implications This study relies heavily on measures from the prior accounting literature, hence, care has been exercised in generalizing the findings. Practical implications This study has direct implications for a number of stakeholders, including standard setters, policymakers, securities regulators, researchers, investors, financial statement preparers and auditors. For example, the future development of accounting standards can be supported by the empirical conclusions in this study together with previous standard-setting ambitions, commentaries, experiments and analytical work. Originality/value This study extends prior single-country studies on reporting quality and cross-country studies on transition effects of firms switching from local to International Accounting Standards by observing the impact of accounting standard characteristics on additional measures of reporting quality and accrual as well as real earnings management when holding institutional factors constant. The study also offers archival evidence complementing prior commentaries, experiments and analytical work.

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Section: Introductionmentioning

confidence: 76%

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confidence: 99%

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confidence: 99%

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The impact of principles-based vs rules-based accounting standards on reporting quality and earnings management

Sundvik

2019

JAAR

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“…Achleitner et al (2014) document that family firms use earnings management activities strategically by avoiding real earnings management that inhibits the firm's longterm value. Similarly, Haga et al (2018) document that public firms employ more real earnings management as a proportion of the total earnings management strategy. However, the prior literature is silent on how one corporate action can influence another corporate action, i.e., how risk-taking can influence real earnings management has not been studied in the previous literature.…”

Section: Literature and Hypothesismentioning

confidence: 99%

Uncovering Real Earnings Management: Pay Attention to Risk-Taking Behavior

Alharbi

Mamun

Atawnah

2021

IJFS

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We examine the impact of corporate risk-taking on firm-level real earnings management. We find that firms with higher risk-taking engage in higher real earnings management. Our results are robust to a series of robustness tests, including simultaneous least squares approach, firm fixed effect, change analysis, and pseudo difference-in-difference analysis. Additional analyses reveal that the impact of risk-taking on real earnings management is more pronounced among firms that experience prior-year loss and are run by top-echelons who are risk lovers. Sarbanes-Oxley Act (SOX) regulation does not attenuate the positive effect of risk-taking on real earnings management. However, external monitoring by institutional investors and takeover susceptibility curb the relation between risk-taking and real earnings management. Our study highlights that outsider, such as investors and regulators, should pay close attention to a firm’s risk-taking behavior to unravel the extent of real earnings management in the firm.

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“…Relatively neglected is the segment of non-listed companies, where financial information generally addresses other categories of users (banks, business partners) that can influence the firm growth by their own behavior. In the case of listed companies, users of published financial information benefit from different protection mechanisms, including listing requirements or financial statement auditing services, which ensure a high-quality level of published results (Haga et al, 2018). In the case of unlisted companies, the lack of such quality assurance mechanisms makes financial reporting play a lesser role in communicating with external users (Beuselinck et al, 2009), thus lowering the quality of the results (Chen et al, 2011).…”

Section: Literature Reviewmentioning

confidence: 99%

The Effect of Discretionary Accruals on Firm Growth. Empirical Evidence for Smes From Emerging Europe

Anton

Carp

2020

Journal of Business Economics and Management

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The aim of the paper is to assess the effect of discretionary accruals on firm growth while controlling for firm characteristics and macroeconomic environment. Employing a large sample of 1.105 young and high-growth firms (gazelles) from 15 emerging European countries over the period 2006–2014, it has been found that the discretionary accruals negatively influence firm growth. The empirical results suggest that discretionary accruals are used as earnings management tools and this practice is more used over the high-growth period (2006–2009), with negative effects on future performance. Furthermore, the results of the quantile regression employed in the whole period suggest that the earnings management practices have a negative effect on firm growth. The results prove to be robust for different estimation approaches and different sub-samples of gazelles. The findings provide empirical evidence for the need for more detailed information provided by firms on the origin of the accruals, as well as for the use in the performance analysis of some indicators that eliminate the influence of accruals, such as cash flow based ratios.

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Stock market listing status and real earnings management

Cited by 49 publications

References 52 publications

The impact of principles-based vs rules-based accounting standards on reporting quality and earnings management

The impact of principles-based vs rules-based accounting standards on reporting quality and earnings management

Uncovering Real Earnings Management: Pay Attention to Risk-Taking Behavior

The Effect of Discretionary Accruals on Firm Growth. Empirical Evidence for Smes From Emerging Europe

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