IDEAS home Printed from https://ideas.repec.org/a/jfr/afr111/v8y2019i1p66.html
   My bibliography  Save this article

The Optimal Level of Earnings Management Deterrence

Author

Listed:
  • Michael Ehud Yampuler

Abstract

The social welfare costs of earnings management have been known to include the distortion of real investment decisions (resulting in inefficient allocation of resources), as well as deadweight loss incurred by the firms to manage earnings. One of the ways used to mitigate the effect of these costs is increasing the level of earnings management deterrence through legislation, regulation and enforcement, as in the Sarbanes-Oxley Act. However, by analyzing a rational expectations equilibrium that includes firms, investors, standard-setters, and legislators, I find that there are situations where such an increase in the level of earnings management deterrence may well be counter-productive. When considering the informational benefits of managing earnings and the substitution effect of accrual-based earnings management with real earnings management, increasing deterrence may result in decreasing the information value of financial reporting as well as increasing total social welfare costs of earnings management.

Suggested Citation

  • Michael Ehud Yampuler, 2019. "The Optimal Level of Earnings Management Deterrence," Accounting and Finance Research, Sciedu Press, vol. 8(1), pages 1-66, February.
    • Handle: RePEc:jfr:afr111:v:8:y:2019:i:1:p:66
    as

    Download full text from publisher

    File URL: https://www.sciedupress.com/journal/index.php/afr/article/download/14467/9015
    Download Restriction: no
    File URL: https://www.sciedupress.com/journal/index.php/afr/article/view/14467
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kang, Seongill, 2017. "The optimal stringency of accounting regulation to alleviate time inconsistency problems," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 190-210.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.

      More about this item

      JEL classification:

      • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
      • Z0 - Other Special Topics - - General

      Statistics

      Access and download statistics

      Corrections

      All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jfr:afr111:v:8:y:2019:i:1:p:66. See general information about how to correct material in RePEc.

      If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

      If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

      If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

      For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sciedu Press (email available below). General contact details of provider: https://edirc.repec.org/data/cepflch.html .

      Please note that corrections may take a couple of weeks to filter through the various RePEc services.

      IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.