Earnings management using asset sales: Interesting issues for further study under unique institutional settings
AbstractPurpose – The paper aims to clarify the relationship between earnings management and the sale of long-lived assets and investments for firms listed in Taiwan. In addition, it suggests several interesting issues for further studies by proposing that positive earnings are one of the necessary conditions for the companies to issue bonds or new shares. Design/methodology/approach – The paper uses archival data and regression analysis to document empirical evidence that assets sales are one of the methods to manipulate reported earnings among 12,484 firm-years over the period of 1984-2006. Findings – The paper finds that approximately 54-57 percent of firms in Taiwan with small pre-managed earnings losses manipulate reported earnings to show small positive earnings. This is in contrast to 30-40 percent of firms in the USA as reported by Burgstahler and Dichev. Research limitations/implications – The paper makes a good use of the unique institutional features of Taiwan. It has not produced other unique results that differ significantly from the findings of prior studies. Practical implications – The paper shows that reported earnings are viewed as a primary measure of firm performance and mechanisms behind earnings management have important implications in deriving informative summary measures of firm performance. Originality/value – The paper fulfils an identified need to study how companies listed in Taiwan to beat thresholds by selling long-lived assets and investments and provides a comparison in earnings management with US companies. Moreover, it provides several suggestions for future studies.
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal International Journal of Accounting and Information Management.
Volume (Year): 18 (2010)
Issue (Month): 3 (September)
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Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ilia D. Dichev, 2002. "Large-Sample Evidence on the Debt Covenant Hypothesis," Journal of Accounting Research, Wiley Blackwell, vol. 40(4), pages 1091-1123, 09.
- Bhattacharya, Utpal & Daouk, Hazem & Welker, Michael, 2003. "The World Price of Earnings Opacity," Working Papers 127185, Cornell University, Department of Applied Economics and Management.
- Beaver, William H. & McNichols, Maureen F. & Nelson, Karen K., 2003. "Management of the loss reserve accrual and the distribution of earnings in the property-casualty insurance industry," Journal of Accounting and Economics, Elsevier, vol. 35(3), pages 347-376, August.
- Kerstein, Joseph & Rai, Atul, 2007. "Intra-year shifts in the earnings distribution and their implications for earnings management," Journal of Accounting and Economics, Elsevier, vol. 44(3), pages 399-419, December.
- Burgstahler, David & Dichev, Ilia, 1997. "Earnings management to avoid earnings decreases and losses," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 99-126, December.
- Degeorge, François & Patel, U & Zeckhauser, Richard, 1998.
"Earnings Management to Exceed Thresholds,"
CEPR Discussion Papers
1790, C.E.P.R. Discussion Papers.
- Geoffrey Poitras & Trevor Wilkins & Yoke Shang Kwan, 2002. "The Timing of Asset Sales: Evidence of Earnings Management?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(7&8), pages 903-934.
- Daniel, Naveen D. & Denis, David J. & Naveen, Lalitha, 2008. "Do firms manage earnings to meet dividend thresholds," Journal of Accounting and Economics, Elsevier, vol. 45(1), pages 2-26, March.
- Roychowdhury, Sugata, 2006. "Earnings management through real activities manipulation," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 335-370, December.
- Jacob, John & Jorgensen, Bjorn N., 2007. "Earnings management and accounting income aggregation," Journal of Accounting and Economics, Elsevier, vol. 43(2-3), pages 369-390, July.
- Don Herrmann & Tatsuo Inoue & Wayne B. Thomas, 2003. "The Sale of Assets to Manage Earnings in Japan," Journal of Accounting Research, Wiley Blackwell, vol. 41(1), pages 89-108, 03.
- Gin Chong & Henry Huang & Yi Zhang, 2012. "Do US commercial banks use FAS 157 to manage earnings?," International Journal of Accounting and Information Management, Emerald Group Publishing, vol. 20(1), pages 78-93.
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