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Impact of product market competition on real activity manipulation: Moderating role of managerial ability

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  • Pallab Kumar Biswas
  • Dinithi Ranasinghe
  • Eric K. M. Tan

Abstract

In this study, we examine whether managerial ability moderates the association between product market competition and real earnings management. Prior literature largely supports the disciplinary effect of competition, suggesting that competition reduces real activity manipulation. We argue that this association is different depending on the level of managerial ability. Based on the reputation hypothesis, we argue that able managers negatively moderate the association between competition and real activity manipulation. Using a sample of US listed companies from 1997 to 2016, we find evidence to support our moderating assertion. A battery of robustness tests validates our original findings.

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  • Pallab Kumar Biswas & Dinithi Ranasinghe & Eric K. M. Tan, 2023. "Impact of product market competition on real activity manipulation: Moderating role of managerial ability," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 247-275, March.
    • Handle: RePEc:bla:acctfi:v:63:y:2023:i:1:p:247-275
    DOI: 10.1111/acfi.13040
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