Real Activities Manipulation and Subsequent Accounting Performance ---Yes, the Manipulating Direction Matters
Previous studies reveal mixed results for the association between managers¡¯ aggressive real activities manipulation and a firm¡¯s subsequent performance. To examine the effects of real activities manipulation on a firm¡¯s subsequent accounting performance, this study incorporates the manipulating patterns (income-increasing vs. income-decreasing) into model, and uses unbalanced- panel data to establish the empirical regressions. The results reveal that a firm¡¯s income-increasing real activities manipulation is associated with a remarkable subsequent accounting performance. This finding supports the signal future prospect hypothesis of firms¡¯ strategic earnings reporting through aggressive real activities manipulation. However, the conjecture that the income-decreasing real activities manipulation is associated with better subsequent performance gains supported only in some settings. This study demonstrates some diagnostic checks, and provides evidence that the results are robust to the various specifications.
Volume (Year): 4 (2014)
Issue (Month): (Feburary)
|Contact details of provider:|| Postal: |
Web page: http://www.bapress.ca
|Order Information:|| Postal: 17 Alton Towers Circle, Unit 101 Toronto, ON, M1V3L8, Canada|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- J. A. Hausman, 1976.
"Specification Tests in Econometrics,"
185, Massachusetts Institute of Technology (MIT), Department of Economics.
- Hribar, Paul & Jenkins, Nicole Thorne & Johnson, W. Bruce, 2006. "Stock repurchases as an earnings management device," Journal of Accounting and Economics, Elsevier, vol. 41(1-2), pages 3-27, April.
- Dechow, Patricia M. & Kothari, S. P. & L. Watts, Ross, 1998. "The relation between earnings and cash flows," Journal of Accounting and Economics, Elsevier, vol. 25(2), pages 133-168, May.
- Cohen, Daniel A. & Zarowin, Paul, 2010. "Accrual-based and real earnings management activities around seasoned equity offerings," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 2-19, May.
- Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
- Graham, John R. & Harvey, Campbell R. & Rajgopal, Shiva, 2005.
"The economic implications of corporate financial reporting,"
Journal of Accounting and Economics,
Elsevier, vol. 40(1-3), pages 3-73, December.
- John R. Graham & Campbell R. Harvey & Shiva Rajgopal, 2004. "The Economic Implications of Corporate Financial Reporting," NBER Working Papers 10550, National Bureau of Economic Research, Inc.
- Dechow, Patricia M. & Sloan, Richard G., 1991. "Executive incentives and the horizon problem : An empirical investigation," Journal of Accounting and Economics, Elsevier, vol. 14(1), pages 51-89, March.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
- 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.
- Roychowdhury, Sugata, 2006. "Earnings management through real activities manipulation," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 335-370, December.
- Daniel A. Bens, 2002. "Real Investment Implications of Employee Stock Option Exercises," Journal of Accounting Research, Wiley Blackwell, vol. 40(2), pages 359-393, 05.
- Sadka, Ronnie, 2011. "Liquidity risk and accounting information," Journal of Accounting and Economics, Elsevier, vol. 52(2), pages 144-152.
- Ivashina, Victoria & Scharfstein, David, 2010. "Bank lending during the financial crisis of 2008," Journal of Financial Economics, Elsevier, vol. 97(3), pages 319-338, September.
- DeFond, Mark L. & Park, Chul W., 1997. "Smoothing income in anticipation of future earnings," Journal of Accounting and Economics, Elsevier, vol. 23(2), pages 115-139, July.
When requesting a correction, please mention this item's handle: RePEc:bap:journl:140107. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bill)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.