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The Effect of Earnings Management on the Value Relevance of Accounting Information

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  • Carol A. Marquardt
  • Christine I. Wiedman

Abstract

This study investigates whether opportunistic earnings management affects the value relevance of net income and book value in determining stock price. We document a decrease in the value relevance of earnings in the year of an equity offering for a group of firms with ex post evidence of earnings management. This decrease is greater for the discretionary component of earnings than for the non-discretionary component. These results are robust to model specification and the type of offering. However, the results are sensitive to firms' disclosure activity prior to the offering. Copyright Blackwell Publishers Ltd, 2004.

Suggested Citation

  • Carol A. Marquardt & Christine I. Wiedman, 2004. "The Effect of Earnings Management on the Value Relevance of Accounting Information," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(3-4), pages 297-332.
  • Handle: RePEc:bla:jbfnac:v:31:y:2004-04:i:3-4:p:297-332
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    Citations

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    Cited by:

    1. Julia Sawicki & Keshab Shrestha, 2014. "Misvaluation and Insider Trading Incentives for Accrual-based and Real Earnings Management," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(7-8), pages 926-949, September.
    2. Tang, Tanya & Firth, Michael, 2011. "Can book-tax differences capture earnings management and tax Management? Empirical evidence from China," The International Journal of Accounting, Elsevier, vol. 46(2), pages 175-204, June.
    3. repec:eee:quaeco:v:66:y:2017:i:c:p:182-191 is not listed on IDEAS
    4. John M. Barrios & Marco Fasan & Daniele Macciocchi, 2013. "CEO turnover, earnings management and value relevance. A theoretical analysis on the Italian context," Working Papers 11, Department of Management, Università Ca' Foscari Venezia.
    5. De-Wai Chou & C. Edward Wang & Sheng-Syan Chen & Sandra Tsai, 2009. "Earnings Management and the Long-Run Underperformance of Firms Following Convertible Bond Offers," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(1-2), pages 73-98.
    6. Chen, Ching-Lung & Lu, Ming-Che & Yen, Gili, 2012. "Dilution/incentive effects associating with employee bonuses in Taiwan: Empirical findings under two regimes," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 267-283.
    7. Joseph P.H. Fan & Feng Guan & Zengquan Li & Yong George Yang, 2014. "Relationship Networks and Earnings Informativeness: Evidence from Corruption Cases," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(7-8), pages 831-866, September.
    8. repec:eee:quaeco:v:68:y:2018:i:c:p:158-170 is not listed on IDEAS
    9. Hany Kamel, 2010. "Assessing the perceptions of the quality of reported earnings in Egypt," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(1), pages 32-52, February.
    10. Jamal Barzegari Khanagha, 2011. "Value Relevance of Accounting Information in the United Arab Emirates," International Journal of Economics and Financial Issues, Econjournals, vol. 1(2), pages 33-45, June.

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