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Classification Shifting in the Income-Decreasing Discretionary Accrual Firms

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  • Humeyra Adiguzel

Abstract

This study investigates whether managers use classification shifting to classify operating expenses as non-operating. Using a methodology similar to McVay (2006), I find no evidence of classification shifting between operating and non-operating expenses. However, I find evidence that managers classify operating expenses as non-operating in the absence of income decreasing accrual management. This finding can be explained that income-decreasing accrual management both affects operating and non-operating expenses and measuring classification shifting without considering discretionary accrual management produces meaningless results.

Suggested Citation

  • Humeyra Adiguzel, 2017. "Classification Shifting in the Income-Decreasing Discretionary Accrual Firms," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 8(3), pages 187-194, July.
    • Handle: RePEc:jfr:ijfr11:v:8:y:2017:i:3:p:187-194
    DOI: 10.5430/ijfr.v8n3p187
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    References listed on IDEAS

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    1. Katherine A. Gunny, 2010. "The Relation Between Earnings Management Using Real Activities Manipulation and Future Performance: Evidence from Meeting Earnings Benchmarks," Contemporary Accounting Research, John Wiley & Sons, vol. 27(3), pages 855-888, September.
    2. Roychowdhury, Sugata, 2006. "Earnings management through real activities manipulation," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 335-370, December.
    3. DeFond, Mark L. & Jiambalvo, James, 1994. "Debt covenant violation and manipulation of accruals," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 145-176, January.
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