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Accrual-based and real earnings management activities around seasoned equity offerings

  • Cohen, Daniel A.
  • Zarowin, Paul
Registered author(s):

    We show that SEO firms engage in real activities manipulation, and the decline in post-SEO performance due to the real activities management is more severe than that due to accrual management. Our evidence is important, because it shows that post-SEO operating underperformance is driven not just by accrual reversals, but also reflects the real consequences of operational decisions made to manage earnings. We also show how firms' choices of real versus accrual-based earnings management activities around SEOs vary predictably as a function of the firm's ability to use accrual management and the costs of doing so.

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    Article provided by Elsevier in its journal Journal of Accounting and Economics.

    Volume (Year): 50 (2010)
    Issue (Month): 1 (May)
    Pages: 2-19

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    Handle: RePEc:eee:jaecon:v:50:y:2010:i:1:p:2-19
    Contact details of provider: Web page: http://www.elsevier.com/locate/jae

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    1. Rangan, Srinivasan, 1998. "Earnings management and the performance of seasoned equity offerings," Journal of Financial Economics, Elsevier, vol. 50(1), pages 101-122, October.
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    4. Shivakumar, Lakshmanan, 2000. "Do firms mislead investors by overstating earnings before seasoned equity offerings?," Journal of Accounting and Economics, Elsevier, vol. 29(3), pages 339-371, June.
    5. Subramanyam, K. R., 1996. "The pricing of discretionary accruals," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 249-281, October.
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    7. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
    8. DuCharme, Larry L. & Malatesta, Paul H. & Sefcik, Stephan E., 2004. "Earnings management, stock issues, and shareholder lawsuits," Journal of Financial Economics, Elsevier, vol. 71(1), pages 27-49, January.
    9. Ron Kasznik, 2002. "Does Meeting Earnings Expectations Matter? Evidence from Analyst Forecast Revisions and Share Prices," Journal of Accounting Research, Wiley Blackwell, vol. 40(3), pages 727-759, 06.
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    13. Loughran, Tim & Ritter, Jay R, 1997. " The Operating Performance of Firms Conducting Seasoned Equity Offerings," Journal of Finance, American Finance Association, vol. 52(5), pages 1823-50, December.
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    16. Roychowdhury, Sugata, 2006. "Earnings management through real activities manipulation," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 335-370, December.
    17. Alan Greenspan, 2002. "Federal Reserve Board's semiannual monetary policy report to the Congress: testimony before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, July 16, 2002," Speech 13, Board of Governors of the Federal Reserve System (U.S.).
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