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Legal Consequences of Earnings Components Management

Author

Listed:
  • Ibrahim, Salma
  • Xu, Li
  • Kalchev, Georgi
  • Deal, Candice Linette

Abstract

This paper investigates how manipulating different earnings components will affect the likelihood of accounting-related shareholder litigation. Firms can manipulate earnings upward by accelerating revenue recognition, understating expenses, and overstating gains associated with special items. Firms can manipulate earnings downward by delaying revenue recognition, overstating expenses, and overstating losses associated with special items. This paper finds that firms accelerating revenue recognition or taking abnormal large losses through special items are more likely to be associated with accountingrelated shareholder litigation. Such association only exists in the post-PSLRA period.

Suggested Citation

  • Ibrahim, Salma & Xu, Li & Kalchev, Georgi & Deal, Candice Linette, 2013. "Legal Consequences of Earnings Components Management," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 11, pages 229-259.
    • Handle: RePEc:zbw:espost:146786
    as

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    References listed on IDEAS

    as
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    4. Salma S. Ibrahim, 2009. "The Usefulness of Measures of Consistency of Discretionary Components of Accruals in the Detection of Earnings Management," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(9-10), pages 1087-1116.
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    Full references (including those not matched with items on IDEAS)

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