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The effect of earnings management on the asymmetric timeliness of earnings

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Author Info

  • García Lara, Juan Manuel
  • García Osma, Beatriz
  • Mora, Araceli

Abstract

Is earnings management affecting (driving) the measures of earnings conservatism?Ball et al. (2000) point out that the asymmetry in the recognition of good and bad news in earnings (faster recognition of bad news: earnings conservatism) is more pronounced in common‐law than in code‐law based accounting regimes. However, comparative studies on earnings conservatism in Europe have failed to identify significant differences between common‐law and code‐law based countries. We argue that in code‐law based countries managers have incentives to reduce earnings consistently. This enhances the association between earnings and returns in bad news periods. We find that after controlling for discretionary accruals, the differential earnings response to bad news in Germany and France decreases significantly.

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Bibliographic Info

Paper provided by Universidad Carlos III de Madrid in its series Open Access publications from Universidad Carlos III de Madrid with number info:hdl:10016/7633.

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Length: 728 p.
Date of creation: Apr 2005
Date of revision:
Publication status: Published in Journal of Business Finance and Accounting (2005-04) v.v. 32, p.691-726
Handle: RePEc:ner:carlos:info:hdl:10016/7633

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Web page: http://www.uc3m.es

Related research

Keywords: Conservatism; Earnings management; Europe; Comparability;

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References

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  1. Teoh, Siew Hong & Welch, Ivo & Wong, T. J., 1998. "Earnings management and the underperformance of seasoned equity offerings," Journal of Financial Economics, Elsevier, vol. 50(1), pages 63-99, October.
  2. Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September.
  3. B. Gill de Albornoz Noguer & M. Illueca Munoz, 2004. "Comparing abnormal accruals models: a non-parametric approach," Applied Economics, Taylor and Francis Journals, vol. 36(13), pages 1455-1460.
  4. Ivana Raonic & Stuart McLeay & Ioannis Asimakopoulos, 2004. "The Timeliness of Income Recognition by European Companies: An Analysis of Institutional and Market Complexity," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(1-2), pages 115-148.
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Cited by:
  1. Robert E. Houmes & Terrance R. Skantz, 2010. "Highly Valued Equity and Discretionary Accruals," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(1-2), pages 60-92.
  2. Conover, C. Mitchell & Miller, Robert E. & Szakmary, Andrew, 2008. "The timeliness of accounting disclosures in international security markets," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 849-869, December.
  3. García Lara, Juan Manuel & García Osma, Beatriz & Penalva, Fernando, 2007. "Board of directors' characteristics and conditional accounting conservatism : Spanish evidence," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/7425, Universidad Carlos III de Madrid.
  4. Karampinis, Nikolaos I. & Hevas, Dimosthenis L., 2011. "Mandating IFRS in an Unfavorable Environment: The Greek Experience," The International Journal of Accounting, Elsevier, vol. 46(3), pages 304-332, September.
  5. Arnedo, Laura & Lizarraga, Fermin & Sanchez, Santiago, 2007. "Does public/private status affect the level of earnings management in code-law contexts outside the United States? A study based on the Spanish case," The International Journal of Accounting, Elsevier, vol. 42(3), pages 305-328.
  6. García Lara, Juan Manuel & García Osma, Beatriz & Penalva, Fernando, 2009. "The economic determinants of conditional conservatism," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/7423, Universidad Carlos III de Madrid.
  7. Cabán-García, María T., 2009. "The impact of securities regulation on the earnings properties of European cross-listed firms," The International Journal of Accounting, Elsevier, vol. 44(3), pages 279-304, September.
  8. García Lara, Juan Manuel & García Osma, Beatriz & Penalva, Fernando, 2009. "Accounting conservatism and corporate governance," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/7606, Universidad Carlos III de Madrid.
  9. García Lara, Juan Manuel & García Osma, Beatriz & Neophytou, Evi, 2011. "Earnings quality in ex-post failed firms," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/12413, Universidad Carlos III de Madrid.
  10. Gutiérrez, Isabel & Núñez-Nickel, Manuel & García, Clara Eugenia, 1998. "Founding effects on complex adaptive organizations : birth constraints in the spanish archivespaper industry," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/7607, Universidad Carlos III de Madrid.

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