Consequences of Real Earnings Management on Subsequent Operating Performance PDF Download
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Author: Gary K. Taylor
Publisher:
ISBN:
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Languages : en
Pages : 0
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Book Description
Using three criteria, we identify firms that may have engaged in real earnings management. We then investigate whether real earnings management activities lead to a significant decline in these firms' subsequent operating performances. Our test results demonstrate that firms identified as conducting real earnings management activities do not experience a significant decline in subsequent operating performance. The finding enhances our understanding of the process through which management evaluates the costs and benefits of real earnings management and helps address concerns about costs of the increase in real earnings management activities that arose due to the heightened accounting regulation implemented by the Sarbanes-Oxley Act.
Author: Gary K. Taylor
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Using three criteria, we identify firms that may have engaged in real earnings management. We then investigate whether real earnings management activities lead to a significant decline in these firms' subsequent operating performances. Our test results demonstrate that firms identified as conducting real earnings management activities do not experience a significant decline in subsequent operating performance. The finding enhances our understanding of the process through which management evaluates the costs and benefits of real earnings management and helps address concerns about costs of the increase in real earnings management activities that arose due to the heightened accounting regulation implemented by the Sarbanes-Oxley Act.
Author: Denise Leggett
Publisher:
ISBN:
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Languages : en
Pages :
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Book Description
Real Earnings Management (REM) is the manipulation of business activities to meet an earning's threshold. Despite concern that REM activities create real economic costs, research on the relation between REM and subsequent operating performance is inconclusive. In this paper, a two-firm-level method of estimating abnormal discretionary expenditures is developed and a more proactive method of identifying REM activity is implemented. Using firm-level estimates of abnormal expenditures, strong evidence of REM negatively related to subsequent period return on assets and cash flows from operations is found. The results suggest that the inconclusive results in prior research may be in part due to estimating abnormal expenditures using industry-level models.
Author: Katherine Ann Gunny
Publisher:
ISBN:
Category :
Languages : en
Pages : 204
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Author: Paulina Sutrisno
Publisher:
ISBN:
Category :
Languages : en
Pages : 9
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Book Description
Objective - The purpose of this research is to examine the consequences of accrual based earnings management and real earnings management on future operating performance. The firms studied engage in accrual-based earnings management with discretionary accrual measures using the modified Jones model and some of the following real earnings management activities: (1) Sales manipulation that accelerates the timing of sales through increased price discounts or cutting prices to boost sales in the current period; and/or (2) cutting of discretionary expenditures to increase income in the current period. Furthermore, the study examines the extent to which discretionary accrual and real earnings management affects subsequent operating performance (as measured by both return on assets and operating cash flows).Methodology/Technique - The sample manufacturing firms that engage in financial statement were listed on the Indonesian Stock Exchange between 2012 and 2014. The hypothesis testing method used in this research is multiple regression linear.Findings - The results suggest that accrual-based earnings management, with discretionary accrual measures, and real earnings management through sales manipulation and discretionary expenditures are positively associated with return on assets after one and two years. Meanwhile, accrual-based earnings management and real earnings management through sales manipulation enhances subsequent operating cash flows. However, real earnings management through discretionary expenditures does not influence operating cash flows.Novelty - This research contributes to the existing literature on the subsequent impact of accrual-based earnings management and real earnings management.
Author: Bazeet Badru
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This study analyses the aspects of real earnings management proxy that involves sales manipulation employ by companies to improve current performance against the future performance. The main objective was centered on whether manipulation of earnings to show good performance in the current period has implication on future performance. In order to achieve the objective, secondary data for a total number of 117 company year observations over a period from 2009 to 2011 was used. The empirical analysis in this study provides evidence that the larger percentage of Nigerian companies engage in sales manipulation to mimic strong performance in the current period, which later has adverse consequences on their future performance. The implication is that real earnings management through sales manipulation has a negative effect on the future performance. Based on the results, it can be concluded that real earnings management has a negative influence on the future performance of companies. The study infers that this explains why most of the Nigeria companies could not survive in the long term because the manager's deceive investors by managing earnings to falsify performance.
Author: Amy Yunzhi Zang
Publisher: ProQuest
ISBN: 9780549163251
Category :
Languages : en
Pages : 120
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Book Description
Author: Darren Henry
Publisher:
ISBN:
Category :
Languages : en
Pages : 65
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Book Description
The paper examines the existence of real earnings management (REM) and accrual earnings management (AEM) around seasoned equity offerings (SEOs) undertaken by Australian firms. We also investigate the subsequent operating earnings performance of the SEO firms that engaged in earnings manipulation and undertake SEOs. Prior studies document the presence of earnings management using univariate tests; however, we provide the first evidence employing both univariate and multivariate tests of the existence and consequences of REM and AEM around the SEOs. We find that managers of Australian SEO firms tend to engage in REM and AEM in the SEO-years, and earnings management activity is greater in these years relative to non-SEO firms and in comparison to the non-issuing years of SEO firms. In addition, consistent with prior evidence, we find that SEO firms performs substantially negatively in the post-SEO period, and SEO firms that engaged in REM and/or AEM underperform significantly those that don't in the post-offering period. However, we document a non-linear earnings management effect, with SEO firms that engaged in greater levels of REM and undertake SEOs having significantly higher subsequent operating performance.
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: Patrick Vorst
Publisher:
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Category :
Languages : en
Pages :
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Book Description
I examine whether a reversal of an abnormal cut in discretionary investments is associated with the degree to which the cut is reflective of real earnings management (REM) and whether and how it predicts future operating performance. I define a reversal as occurring when a firm cuts discretionary investments to a below-expected level in one period and reverts back to at least the expected level of investment during the next period. Unlike accrual earnings management, REM involves deliberately altering the operations of the firm to influence reported accounting numbers. To the extent that such interventions diverge from optimality, they can expose the firm to real economic costs. I find that a reversal of an abnormal cut in discretionary investments in the year after the cut has taken place is indicative of REM. I further find that, on average, reversing cuts are associated with lower future operating performance, but that such results vary significantly depending on the various incentives to engage in REM, as well as other factors that affect its associated costs and benefits. These findings are of interest to investors, regulators and academics with respect to the identification and consequences of REM.
Author: Katherine Gunny
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
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Book Description
This paper examines the consequences of real activities manipulation. Using financial statement data, I identify firms that appear to engage in any of the following real activities manipulation (RM): reducing Ramp;D to increase income, reducing SGamp;A to increase income, timing of income recognition from the disposal of long-lived assets and investments, and cutting prices to boost sales in the current period and/or overproducing to decrease COGS expense. I then examine whether RM is associated with firms just meeting two earnings benchmarks (zero and last year's earnings). The results indicate that real activities manipulation of Ramp;D, SGamp;A, and production are positively associated with firms just meeting these earnings benchmarks. Next, I examine the extent to which real activities manipulation affects subsequent performance. A negative association between just meeting earnings benchmarks by using RM and subsequent performance supports prior research suggesting managers opportunistically use earnings management to the detriment of shareholders (i.e., managerial opportunism). A positive association is consistent with managers using operational discretion to attain benefits that allow better future performance or to signal future firm value. I find that firm-years reflecting RM to just meet earnings benchmarks have higher subsequent firm performance (compared to firm-years that do not engage in RM and miss or just meet the earnings benchmarks). In this setting, using RM to influence the output of the accounting system is not opportunistic, but consistent with managers attaining benefits that allow better future performance or signaling.
