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Earnings Management to Exceed the Threshold: A Comparative Analysis of Consolidated and Parent-only Earnings

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Author Info

  • Akinobu Shuto

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

This paper examines whether consolidated earnings are managed to a greater extent than parent-only earnings or vice versa in an attempt to exceed the threshold in Japanese firms. The analysis reveals that earnings management to avoid earnings decreases is more pronounced in parent-only earnings for the period 1980-1999. Further, it reveals that the management of parent-only earnings has been less pervasive following the introduction of the new consolidated reporting system in March 2000. In addition, this paper provides evidence suggesting that earnings management in consolidated earnings increased after March 2000. These results indicate the possibility that the new consolidated reporting system and principles reduce the incentive to manage parent-only earnings and increase that to manage consolidated earnings.

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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number 224.

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Length: 48 pages
Date of creation: Sep 2005
Date of revision: Jul 2008
Handle: RePEc:kob:dpaper:224

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Keywords: Earnings management; Earnings distribution; Accounting regulation; Consolidated earnings; Parent-only earnings;

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References

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  1. French, K.R. & Poterba, J.M., 1990. "Are Japanese Stock Prices Too High?," Working papers 547, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Hall, C. & Hamao, Y. & Harris, T.S., 1992. "A Comparison of relations Between Security Market Prices, Returns and Accounting Measures in Japan and the Unites States," Papers 92-36, Columbia - Graduate School of Business.
  3. Takao Kato, 1994. "Chief Executive Compensation and Corporate Groups in Japan: New Evidence from Micro Data," Economics Working Paper Archive wp_117, Levy Economics Institute.
  4. Kaplan, Steven N, 1994. "Top Executive Rewards and Firm Performance: A Comparison of Japan and the United States," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 510-46, June.
  5. 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.
  6. Cindy Durtschi & Peter Easton, 2005. "Earnings Management? The Shapes of the Frequency Distributions of Earnings Metrics Are Not Evidence Ipso Facto," Journal of Accounting Research, Wiley Blackwell, vol. 43(4), pages 557-592, 09.
  7. Degeorge, Fran├žois & Patel, U & Zeckhauser, Richard, 1998. "Earnings Management to Exceed Thresholds," CEPR Discussion Papers 1790, C.E.P.R. Discussion Papers.
  8. Healy, Paul M., 1985. "The effect of bonus schemes on accounting decisions," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 85-107, April.
  9. Kang, Jun-Koo & Shivdasani, Anil, 1995. "Firm performance, corporate governance, and top executive turnover in Japan," Journal of Financial Economics, Elsevier, vol. 38(1), pages 29-58, May.
  10. Robert M. Conroy & Kenneth M. Eades & Robert S. Harris, 2000. "A Test of the Relative Pricing Effects of Dividends and Earnings: Evidence from Simultaneous Announcements in Japan," Journal of Finance, American Finance Association, vol. 55(3), pages 1199-1227, 06.
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Cited by:
  1. Akinobu Shuto & Takuya Iwasaki, 2013. "The Effect of Institutional Factors on Discontinuities in Earnings Distribution: Public Versus Private Firms in Japan," Discussion Paper Series DP2013-32, Research Institute for Economics & Business Administration, Kobe University.

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