Earnings Management and the Revelation Principle
AbstractWhen the Revelation Principle (RP) holds, managing earnings confers no advantage over revelation. We construct an explanation for earnings management that is based on limitations on owners? ability to make commitments (a violation of the RP?s assumptions). Traditionally, earnings management is seen as sneaky managers pulling the wool over the eyes of gullible owners by manipulating accruals; our limited commitment story suggests that the owners, too, can benefit from earnings management. We categorize a variety of extant explanations of earnings management, along with our own, according to which the assumptions of the RP each explanation violates. Plausibility of multiple simultaneous violations of the assumptions and strategic use of various accounting and real instruments of earnings management, complicate the task of detecting such management in field data.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm120.
Date of creation: 31 Aug 1999
Date of revision:
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- De Waegenaere, A.M.B. & Wielhouwer, J.L., 2008. "On the Effects of the Degree of Discretion in Reporting Managerial performance," Discussion Paper 2008-21, Tilburg University, Center for Economic Research.
- Antle, Rick & Bogetoft, Peter & Stark, Andrew W., 2001.
"Information systems, incentives and the timing of investments,"
Journal of Accounting and Public Policy,
Elsevier, vol. 20(4-5), pages 267-294.
- Antle, Rick & Bogetoft, Peter & Stark, Andrew W., 2000. "Information Systems, Incentives and the Timing of Investment," Unit of Economics Working papers 24201, Royal Veterinary and Agricultural University, Food and Resource Economic Institute.
- Cornett, Marcia Millon & McNutt, Jamie John & Tehranian, Hassan, 2009. "Corporate governance and earnings management at large U.S. bank holding companies," Journal of Corporate Finance, Elsevier, vol. 15(4), pages 412-430, September.
- Gao, Pingyang, 2008. "Disclosure Quality, Cost of Capital, and Investors’ Welfare," MPRA Paper 9478, University Library of Munich, Germany, revised Jun 2008.
- Thomas Pfeiffer, 2004. "The Value of Information in the Hold-Up Problem," German Economic Review, Verein für Socialpolitik, vol. 5(2), pages 177-203, 05.
- Guillaume Roger, 2011. "Optimal contract under moral hazard with soft information," Discussion Papers 2012-12, School of Economics, The University of New South Wales.
- Shyam Sunder, 2011. "Paradox of Writing Clear Rules: Interplay of Financial Reporting Standards and Engineering," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, vol. 1, pages 119-130, December.
- Anh Duc Ngo & Oscar Varela, 2012. "Earnings smoothing and the underpricing of seasoned equity offerings," Managerial Finance, Emerald Group Publishing, vol. 38(9), pages 833-859, September.
- Bo Sun, 2010. "Asset Returns with Earnings Management," 2010 Meeting Papers 5, Society for Economic Dynamics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.