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Subject: search.filters.subject.Earnings management

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    Testing accruals based earnings management models in an international context : a thesis presented in partial fulfilment of the requirements for the degree of Master of Business Studies in Accountancy at Massey University, Albany, New Zealand
    (Massey University, 2014) Kashmiri, Hawazin
    The main purpose of this thesis is to extend the study by Dechow, Hutton, Kim and Sloan (2012) in two ways: firstly by comparing the specification and power of the McNichols (2002) model with a newer model, Dunmore (2013). Secondly, the Dechow et al. (2012) study is extended into an international context using data from China, Japan and the United Kingdom to examine the specification and power of the models as a result of institutional factors. Data was collected for the years 1993 to 2012 and comprises a total of 13,238 firm years from China, 44,005 firm years from Japan and 7,782 firm years from the United Kingdom. The study finds that both the McNichols (2002) and the Dunmore (2013) models are well specified and the test power is improved by the incorporation of reversals. However, the study also finds that the McNichols (2002) model outperforms the Dunmore (2013) model. Finally, the results are quite different for each country, but not in the way that is predicted by the institutional factors.
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    The mispricing of real earnings management in the post-Sarbanes-Oxley era : a dissertation presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Accountancy at Massey University, Auckland, New Zealand
    (Massey University, 2013) Cai, Lei
    Recent studies document that there has been a shift towards real activities earnings management (REM) because accrual-based earnings management (AEM) is under enhanced scrutiny since the enactment of Sarbanes-Oxley Act of 2002 (SOX). The prior literature contends that for REM, firms reduce certain real activities to cut costs, and that such reductions can lead to adverse effects on future performance. This study examines whether investors efficiently price or misprice REM in the post-SOX environment. I conduct a two-stage analysis. First, I estimate the REM of firms using the methods adopted in the extant literature. Since the corporate governance literature suggests that the level of earnings management of firms is influenced by the corporate governance features of firms and managerial incentives arising from certain firm features, I moderate the REM indicators to take into account the effects of these features on investors’ perceptions of earnings management practices of firms. Since AEM coexists and competes with REM, I make similar estimations for accruals management. Second, I evaluate the effects of REM on both current-year stock returns and future performance. Since REM is expected to have adverse effects on future firm performance, REM is likely to be negatively associated with future firm performance, and in an efficient market it would be priced negatively in the year in which it is reported. However, I find a positive association between REM and current-year stock returns, and a negative association between REM and future firm performance. This result indicates that the market places a positive connotation on income-increasing REM, but the actual effects of REM on future performance are negative. The inference is that the market misprices reported earnings in the year when REM is conducted.