| Title | Industry Valuation Driven Earnings Management |
|---|---|
| Published in | ERIM report series research in management Erasmus Research Institute of Management. ISSN 1566-5283. |
| Author | Jiao, T. (Tao); Mertens, G.M.H. (Gerard); Roosenboom, P.G.J. (Peter) |
| Date | 2007-10-25 |
| Language | English |
| Type | working paper |
| Publisher | Rotterdam School of Management (RSM) Erasmus University, Erasmus Research Institute of Management (ERIM) |
| Abstract | This paper investigates whether industry valuation impacts firms’ earnings management decisions. Existing accounting literature assumes that industry valuation has a constant impact on this decision. We argue that a higher industry valuation increases the perceived benefits of earnings management at a time when the negative consequences associated with accrual reversal and the probability of detection are believed to be lower. Using a sample of quarterly data of U.S. firms from 1985 to 2005, we find that the four-quarter lagged industry valuation has a positive relationship with industry aggregate (current) discretionary accruals. More specific, one standard deviation increase in the aggregate industry valuation is associated with a significant increase of 2.4 cents in quarterly earnings per share. Our results are robust after controlling for several factors, including bubble years, size, leverage and performance. |
| Publication | http://hdl.handle.net/1765/10608 |
| Persistent Identifier | urn:NBN:nl:ui:15-1765/10608 |
| Metadata | XML |
| Repository | Erasmus University Rotterdam |
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