The Implications of Absorption Cost Accounting and Production Decisions for Future Firm Performance and Valuation*

Real Earnings Management Uncertainty and Corporate Credit Risk

“…Other interesting findings are that R_CFO significantly and negatively relates to bond yield spreads, while R_PROD has positive effects on bond yield spreads. It is consistent with Gupta et al (2010), suggesting that a higher degree of RM may negatively relate to operating performance in subsequent periods.…”

“…Previous RM-related studies suggest that a firm's RM activities affect its future operating performance, either positively (Gunny, 2010) or negatively (Cohen & Zarowin, 2010;Gunny, 2005;Gupta et al, 2010;Leggett et al, 2009;Roychowdhury, 2006). As a result, this study could reasonably conjecture that the fluctuations of RM activities have impacts on a firm's operating performance uncertainty, namely, its operating risk.…”

“…Hence, asset return, asset volatility, default threshold, and incomplete accounting information all contribute to the essence of corporate credit risk.3 We focus on addressing the effects of RM variations, but still empirically examining the effects of both RM levels and RM variations on the credit risk in Section 5 Gunny (2010). suggests RM is associated with better performance, while other studies reach the opposite conclusions(Cohen & Zarowin, 2010;Gunny, 2005;Gupta, Pevzner, & Seethamraju, 2010;Leggett et al, 2009;Roychowdhury, 2006). Therefore, we hypothesise that the RM levels affect the operating performance, which influences the credit risk, but the direction is either positive or negative, depending on the costs of RM and the incentives to manage earnings.…”

The Real Effects of Real Earnings Management: Evidence from Innovation

“…() and Chapman and Steenburgh (), who examine advertising and marketing actions, and Gupta et al. (), who examine overproduction and accounting performance. Given the broader literature on the consequences of real activities manipulation (e.g., Bhojraj et al.…”

The Association of Real Earnings Management with: Enterprise Resource Planning Systems, Audit Effort, and Future Financial Performance

“…Lev and Thiagaranjan (1993) Firms' fixed cost structures provide a more complete explanation on how overproduction results in higher accounting performance. Gupta, Pevzner and Seethamraju (2010), investigate the relation between fixed costs and performance. Their evidence reveals a significant association between overproduction and contemporaneous return on assets for firms with higher fixed costs and with incentives to overproduce.…”