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The incidence of earnings management on information asymmetry in an uncertain environment: Some Canadian evidence

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  • Cormier, Denis
  • Houle, Sylvain
  • Ledoux, Marie-Josée

Abstract

In this study, we investigate the association between earnings management and information asymmetry considering environmental uncertainty. Results show that a complex and dynamic environment weakens the relationship between discretionary accruals and information asymmetry measured as share price volatility and bid-ask spread. More specifically, the positive relationship between earnings management and information asymmetry is weakened for diversified firms, those intensively investing in R&D, and those facing high sales volatility. This highlights the difficulty for investors to assess earnings management in an uncertain environment. Finally, in such a context, discretionary accruals are more likely to be detected by investors for firms cross-listed on a U.S. stock exchange, a more liquid and transparent stock market compared with the Canadian stock market.

Suggested Citation

  • Cormier, Denis & Houle, Sylvain & Ledoux, Marie-Josée, 2013. "The incidence of earnings management on information asymmetry in an uncertain environment: Some Canadian evidence," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 22(1), pages 26-38.
    • Handle: RePEc:eee:jiaata:v:22:y:2013:i:1:p:26-38
    DOI: 10.1016/j.intaccaudtax.2013.02.002
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