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Growth opportunities and earnings management by cross-listed and U.S. firms

Author

Listed:
  • Shrikant P. Jategaonkar

    (Southern Illinois University Edwardsville)

  • Linda M. Lovata

    (Southern Illinois University Edwardsville)

  • Xiaoxiao Song

    (Southern Illinois University Edwardsville)

Abstract

Using a sample of cross-listed and U.S. firms, we examine whether firms’ growth opportunities are associated with discretionary accruals and/or real activities management. While existing papers have reported mixed evidence for U.S. firms, we are the first to explicitly compare earnings management of cross-listed growth versus cross-listed value firms. Using the Tobin’s Q ratio as our proxy for growth opportunities, we compare earnings management by: (i) cross-listed growth versus cross-listed value firms, (ii) cross-listed growth versus U.S. growth firms, and (iii) cross-listed value versus U.S. value firms. We find significantly more management of discretionary accruals and real activities for cross-listed growth firms than the cross-listed value firms. In addition, the difference in earnings management between cross-listed and U.S. firms is concentrated in the growth firms, as there are no significant differences in earnings management between the cross-listed and U.S. value firms. Our findings have implications for analysts and investors interested in cross-listed firms. A better understanding of earnings management by firms with high or low growth opportunities can enable them to better assess the quality of earnings of these companies.

Suggested Citation

  • Shrikant P. Jategaonkar & Linda M. Lovata & Xiaoxiao Song, 2023. "Growth opportunities and earnings management by cross-listed and U.S. firms," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(1), pages 157-183, March.
    • Handle: RePEc:spr:jecfin:v:47:y:2023:i:1:d:10.1007_s12197-022-09599-3
    DOI: 10.1007/s12197-022-09599-3
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    More about this item

    Keywords

    Tobin’s Q; Cross-listed firms; Growth opportunities; Earnings management; Discretionary accruals management; Real activities management;
    All these keywords.

    JEL classification:

    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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