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Earnings management to achieve industry-average profitability in Japan

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  • Tomoyasu Yamaguchi

Abstract

This study examines earnings management activities to achieve industry-average profitability in Japanese firms. I focus on Japanese firms because they tend to be preoccupied with the activities and profitability of industry competitors. I find that firms just meeting or slightly beating industry-average profitability (JUSTMEET_PEER firms) are positively related to real and accrual-based earnings management. I also find that the positive relationship between JUSTMEET_PEER firms and real earnings management is stronger when the JUSTMEET_PEER firms operate in more competitive industries. Finally, similar evidence is found for firms that just meet and slightly beat industry-average forecast profitability. These findings suggest that Japanese firms tend to regard industry-average profitability as an important benchmark and are likely to engage in earnings management to achieve the benchmark.

Suggested Citation

  • Tomoyasu Yamaguchi, 2022. "Earnings management to achieve industry-average profitability in Japan," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 29(2), pages 402-431, March.
    • Handle: RePEc:taf:raaexx:v:29:y:2022:i:2:p:402-431
    DOI: 10.1080/16081625.2020.1726188
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    Cited by:

    1. Wenjun Kuang, 2023. "Accounting comparability and the accuracy of management earnings forecasts in Japan," Discussion Papers in Economics and Business 23-07, Osaka University, Graduate School of Economics.
    2. Koga, Yuya & Yamaguchi, Tomoyasu, 2023. "Does mandatory quarterly reporting induce managerial myopic behavior? Evidence from Japan," Finance Research Letters, Elsevier, vol. 56(C).

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