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Are Unmanaged Earnings Always Better for Shareholders?


  • Anil Arya
  • Shyam Sunder
  • Jonathan Glover


The push for increased transparency in financial reporting and corporate governance serves shareholders only up to a limit. The problem of assessing the value of transparency to shareholders is subtle because both the level and pattern of earnings can convey information. Even when earnings management conceals information, it can be beneficial to shareholders. Distinguishing between ex ante and ex post efficiency underscores the advantages of achieving a balance between transparency and privacy in corporations.

Suggested Citation

  • Anil Arya & Shyam Sunder & Jonathan Glover, 2002. "Are Unmanaged Earnings Always Better for Shareholders?," Yale School of Management Working Papers ysm295, Yale School of Management, revised 01 Feb 2003.
  • Handle: RePEc:ysm:somwrk:ysm295

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    References listed on IDEAS

    1. Arya, A. & Glover, J., 1999. "Aggregate Performance Measures as a Response to One-Side Error Correction," GSIA Working Papers 1999-21, Carnegie Mellon University, Tepper School of Business.
    2. repec:bla:joares:v:37:y:1999:i::p:187-214 is not listed on IDEAS
    3. Jonathan C. Glover & Anil Arya & Shyam NMI Sunder, 1999. "Earnings Management and the Revelation Principle," Yale School of Management Working Papers ysm120, Yale School of Management.
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    Cited by:

    1. Jiraporn, Pornsit & Miller, Gary A. & Yoon, Soon Suk & Kim, Young S., 2008. "Is earnings management opportunistic or beneficial? An agency theory perspective," International Review of Financial Analysis, Elsevier, vol. 17(3), pages 622-634, June.
    2. Chi, Jianxin (Daniel) & Gupta, Manu, 2009. "Overvaluation and earnings management," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1652-1663, September.
    3. Lucy F. Ackert & Bryan K. Church & Kirsten Ely, 2010. "Weak and Strong Individual Forecasts: Additional Experimental Evidence," Chapters,in: Handbook of Behavioral Finance, chapter 14 Edward Elgar Publishing.
    4. Rusmin Rusmin, 2010. "Auditor quality and earnings management: Singaporean evidence," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(7), pages 618-638, July.
    5. repec:eee:riibaf:v:42:y:2017:i:c:p:1164-1172 is not listed on IDEAS
    6. Ung, Lik-Jing & Brahmana, Rayenda & Puah, Chin Hong, 2014. "Earnings Management, Ownership Expropriation and Brokerage Fee of Malaysian Property Companies," MPRA Paper 63427, University Library of Munich, Germany.
    7. Benito Arruñada, 2011. "Mandatory accounting disclosure by small private companies," European Journal of Law and Economics, Springer, vol. 32(3), pages 377-413, December.
    8. Bo Sun, 2009. "Asset returns with earnings management," International Finance Discussion Papers 988, Board of Governors of the Federal Reserve System (U.S.).
    9. Kenneth J. Hunsader & Gwendolyn Pennywell, 2011. "Earnings management and the stock market response to the Sarbanes-Oxley Act based on a measure of competitive strategy," Review of Accounting and Finance, Emerald Group Publishing, vol. 10(4), pages 368-384, November.
    10. Chisari, Omar O. & Ferro, Gustavo, 2009. "Gobierno Corporativo: los problemas, estado actual de la discusión y un ejercicio de medición para Argentina
      [Corporate Governance: the problems, the current stage of the discussion and a measureme
      ," MPRA Paper 15630, University Library of Munich, Germany.
    11. Hui-Wen Tang & Chong-Chuo Chang, 2015. "Does corporate governance affect the relationship between earnings management and firm performance? An endogenous switching regression model," Review of Quantitative Finance and Accounting, Springer, vol. 45(1), pages 33-58, July.
    12. Katsuo, Yuko, 2008. "Earnings quality, accruals and subjective goodwill accounting," LSE Research Online Documents on Economics 6912, London School of Economics and Political Science, LSE Library.
    13. Ung, Lik-Jing & Brahmana, Rayenda & Puah, Chin-Hong, 2014. "Does retrenchment strategy mitigate earnings management? Evidence from Public Listed Companies in Malaysia," MPRA Paper 63426, University Library of Munich, Germany.
    14. Badertscher, Brad A. & Collins, Daniel W. & Lys, Thomas Z., 2012. "Discretionary accounting choices and the predictive ability of accruals with respect to future cash flows," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 330-352.
    15. Gao, Pingyang, 2008. "Disclosure Quality, Cost of Capital, and Investors’ Welfare," MPRA Paper 9478, University Library of Munich, Germany, revised Jun 2008.
    16. Ugo Lassini & Andrea Lionzo & Francesca Rossignoli, 2016. "Does business model affect accounting choices? An empirical analysis of European listed companies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 20(2), pages 229-260, June.
    17. Balakrishnan, Ramji & Qiu, Xin Ying & Srinivasan, Padmini, 2010. "On the predictive ability of narrative disclosures in annual reports," European Journal of Operational Research, Elsevier, vol. 202(3), pages 789-801, May.
    18. Timothy Fogarty & Michel Magnan & Garen Markarian & Serge Bohdjalian, 2009. "Inside Agency: The Rise and Fall of Nortel," Journal of Business Ethics, Springer, vol. 84(2), pages 165-187, January.
    19. Bernard Raffournier, 2013. "Has accounting quality increased in Europe after IFRS adoption?," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2013(2), pages 71-78.
    20. Ghosh, Dipankar & Olsen, Lori, 2009. "Environmental uncertainty and managers' use of discretionary accruals," Accounting, Organizations and Society, Elsevier, vol. 34(2), pages 188-205, February.
    21. repec:eme:mfipps:v:36:y:2010:i:3:p:485-507 is not listed on IDEAS
    22. Shyam Sunder, 2011. "Paradox of Writing Clear Rules: Interplay of Financial Reporting Standards and Engineering," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, vol. 1, pages 119-130, December.
    23. Xingqiang Du & Wei Jian & Shaojuan Lai & Yingjie Du & Hongmei Pei, 2015. "Does Religion Mitigate Earnings Management? Evidence from China," Journal of Business Ethics, Springer, vol. 131(3), pages 699-749, October.
    24. Ji-Hye Park & Joong-Seok Cho, 2016. "The Effect of Earnings Recognition on Firm-Specific Information Variation," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 386-391.

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