A Simple Approach to Better Distinguish Real Earnings Manipulation from Strategy Changes PDF Download
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Author: Theodore E. Christensen
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
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Book Description
Researchers typically infer real earnings management when a firm's operating and investing activities differ from industry norms. One significant problem with classifying deviations from industry averages as “earnings management” is that companies can change their operating and investing decisions for strategic reasons, and it is difficult to distinguish strategy adjustments from earnings management. We focus on opportunistic real earnings management, which we label “manipulation.” We use Principal Components Analysis (PCA) to develop real earnings manipulation (REM) measures that reflect the concurrent use of multiple activities. This approach is promising because, although there are many possible sources of abnormal activity levels aside from manipulation, there are fewer sources that can explain the combined, income-increasing use of these real activities. This simple approach results in REM metrics that (1) associate negatively with future operating performance, (2) reduce earnings persistence, (3) yield high-power tests, and (4) appear to capture “manipulation” reasonably well across most firm life-cycle stages. Importantly, this approach performs better than the standard real earnings management metrics across all dimensions. Also, because this innovation does not require a long time-series of data or rely on future period realizations for classification, it can be useful in more research settings than other recent innovations proposed in prior research.
Author: Theodore E. Christensen
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
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Book Description
Researchers typically infer real earnings management when a firm's operating and investing activities differ from industry norms. One significant problem with classifying deviations from industry averages as “earnings management” is that companies can change their operating and investing decisions for strategic reasons, and it is difficult to distinguish strategy adjustments from earnings management. We focus on opportunistic real earnings management, which we label “manipulation.” We use Principal Components Analysis (PCA) to develop real earnings manipulation (REM) measures that reflect the concurrent use of multiple activities. This approach is promising because, although there are many possible sources of abnormal activity levels aside from manipulation, there are fewer sources that can explain the combined, income-increasing use of these real activities. This simple approach results in REM metrics that (1) associate negatively with future operating performance, (2) reduce earnings persistence, (3) yield high-power tests, and (4) appear to capture “manipulation” reasonably well across most firm life-cycle stages. Importantly, this approach performs better than the standard real earnings management metrics across all dimensions. Also, because this innovation does not require a long time-series of data or rely on future period realizations for classification, it can be useful in more research settings than other recent innovations proposed in prior research.
Author: Amy Yunzhi Zang
Publisher: ProQuest
ISBN: 9780549163251
Category :
Languages : en
Pages : 120
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Book Description
Author: Gary Giroux
Publisher: John Wiley & Sons
ISBN:
Category : Business & Economics
Languages : en
Pages : 344
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Book Description
ESSENTIAL TOOLS AND STRATEGIES FOR DETECTING MANIPULATION. As recent corporate scandals prove, corrupt companies can maintain a façade of financial success through manipulation and fraud almost to the day they file for bankruptcy. Fortunately, tools exists to detect aggressive earnings management. This timely book reviews the current environment, explains the tools that can be used to detect a manipulative financial environment, and introduces techniques for recasting financial information to get a truer economic picture. Brief cases reflecting a variety of companies provide a feel for evaluating public data and how earning management potential can be analyzed. In addition, an appendix features a complete earnings management detection checklist that can be used to conduct a thorough analysis of any corporation. Detecting Earning Management will help readers: Identify the incentive of management to manipulate earning to promote their own short-term interests. Evaluate the effectiveness of corporate governance to limit short-term manipulation and promote long-term success. Consider whether recent regulations, such as Sarbanes-Oxley, will limit future abuse. Review the major fraud techniques used in the recent and not-so-recent scandals. Identify the potential areas of manipulation and other sources of distortion and develop appropriate detection strategies. Understand the challenging areas that can distort financial reality such as acquisitions, derivatives, and special purpose entities.
Author: Xingbang Su
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Earnings manipulation has perplexed many investors and regulators for decades. Factors such as CEO's characteristics, macro environment, behavioral biases, and regulation rules are discussed in the literature. In this paper, corporate strategy aggressiveness is proposed to be one of the factors that leads to earnings manipulation. Short interest ratio is used to indicate how the market perceive and react to company's earnings manipulation probability. Based on the data from Russell 2000 constituents during 2015 to 2019, my hierarchical regression results indicate that firms with the aggressive strategy are more likely to be engaged in earnings manipulation activities, resulting in a higher short interest ratio. The findings are significant when the model uses a binary variable instead of a continuous variable to measure the corporate strategy aggressiveness in the robust test. This paper will interest investors that focus on fundamental investing and researchers who study accounting, corporate strategy, and financial market.
Author: Kenneth A. Merchant
Publisher: Pearson Education
ISBN: 9780273708018
Category : Business & Economics
Languages : en
Pages : 876
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Book Description
With its unique range of case studies, real life examples and comprehensive coverage of the latest management control-related tools and techniques, Management Control Systems is the ideal guide to this complex and multidimensional subject for upper level undergraduates, postgraduates and practising professionals.
Author: Ralf Ewert
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 142
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Book Description
Earnings Management, Conservatism, and Earnings Quality reviews and illustrates earnings management, conservatism, and their effects on earnings quality in an economic modeling framework. Both earnings management and conservative accounting introduce biases to financial reports. The fundamental issue addressed is what economic effects these biases have on earnings quality or financial reporting quality. Earnings Management, Conservatism, and Earnings Quality reviews analytical models of earnings management and conservatism and shows that both can have beneficial or detrimental economic effects, so a differentiated view is appropriate. Earnings management can provide additional information via the financial reporting communication channel, but it can also be used to misrepresent the firm's position. What the authors find is that similar to earnings management, conservatism can reduce the information content of financial reports if it suppresses relevant information, but it can be a desirable feature that improves economic efficiency. The approach to study earnings management, conservatism, and earnings quality is based on the information economics literature. A variety of analytical models are reviewed that capture the effects and subtle interactions of managers' incentives and rational expectations of users. The benefit of analytical models is to make precise these, often highly complex, strategic effects. They offer a rigorous explanation for the phenomena and show that sometimes conventional wisdom does not apply. The monograph is organized around a few basic model settings, which are presented in simple versions first and then in extensions to elicit the main insights most clearly. Chapter 2 presents the basic rational expectations equilibrium model with earnings management and rational inferences by the capital market. Chapter 3 is devoted to earnings quality and earnings quality metrics used in many studies. Chapter 4 studies conservatism in accounting. Finally, the authors examine the interaction between conservatism and earnings management. Each chapter ends with a section containing a summary of the main findings and conclusions.
Author: Aswath Damodaran
Publisher: Now Publishers Inc
ISBN: 1601980140
Category : Business & Economics
Languages : en
Pages : 102
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Book Description
Valuation lies at the heart of much of what we do in finance, whether it is the study of market efficiency and questions about corporate governance or the comparison of different investment decision rules in capital budgeting. In this paper, we consider the theory and evidence on valuation approaches. We begin by surveying the literature on discounted cash flow valuation models, ranging from the first mentions of the dividend discount model to value stocks to the use of excess return models in more recent years. In the second part of the paper, we examine relative valuation models and, in particular, the use of multiples and comparables in valuation and evaluate whether relative valuation models yield more or less precise estimates of value than discounted cash flow models. In the final part of the paper, we set the stage for further research in valuation by noting the estimation challenges we face as companies globalize and become exposed to risk in multiple countries.
Author:
Publisher: Lulu.com
ISBN: 9291316695
Category : Bank capital
Languages : en
Pages : 294
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Book Description
Author: E. J. Hannan
Publisher: SIAM
ISBN: 1611972183
Category : Business & Economics
Languages : en
Pages : 418
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Book Description
Originally published: New York: Wiley, c1988.
Author: Patricia M. Dechow
Publisher: Research Foundation of the Institute of Chartered Financial Analysts
ISBN: 9780943205687
Category : Corporate profits
Languages : en
Pages : 152
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Book Description
