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The Informational and Strategic Impacts of Real Earnings Management

Author

Listed:
  • Shirley J. Ho

    (Department of Economics, National Chengchi University)

  • Hao-Chang Sung

    (Department of Money and Banking, National Chengchi University)

Abstract

We address the informational and strategic impacts of real earnings management (REM) in a two-period oligopoly model with one-sided information. For the strategic impacts of REM, once the demand falls short of expectation, a firm should raise the price instead of cutting it to reach the earnings target. For the informational impacts, to maintain opponents' uncertainty, the privately informed firm could conceal its identity by taking a mixed strategy and setting the first period price to be higher than in the separating equilibrium. Finally, the presence of tunnelling from cross-shareholding firm will enhance the price cut in the second period.

Suggested Citation

  • Shirley J. Ho & Hao-Chang Sung, 2012. "The Informational and Strategic Impacts of Real Earnings Management," Annals of Economics and Finance, Society for AEF, vol. 13(2), pages 355-380, November.
  • Handle: RePEc:cuf:journl:y:2012:v:13:i:2:n:5:ho
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    References listed on IDEAS

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    Cited by:

    1. Liu, Luke, 2011. "Securitization and moral hazard: Does security price matter?," MPRA Paper 35004, University Library of Munich, Germany.

    More about this item

    Keywords

    Real earnings management; Incomplete information; Price manipulation; Cross-shareholding; Tunnelling;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G3 - Financial Economics - - Corporate Finance and Governance

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