دانلود رایگان مقاله انگلیسی مدیریت درآمد پس از ناپدید شدن گسستگی درآمد صفر - امرالد 2017

Abstract

Purpose: The purpose of this paper is to investigate earnings management by firms reporting a small profit or a small loss after the recent evidence that the discontinuity around zero earnings has disappeared. Design/methodology/approach: Using a large sample of US firms for the period 2002-2011, regression analysis and earnings distribution approach are employed to examine the earnings management of small profit and small loss firms in terms of both accruals management and real activities manipulation. Findings: The results suggest that both small profit and small loss firms are engaged in upward manipulation of accruals and real activities. This implies that failure to document a difference between firms to the right and left of zero by prior studies is not due to small profit firms not managing earnings, but rather this is more attributable to loss firms engaging in upward manipulation. Furthermore, it is indicated that the discontinuity around the distribution of earnings change has also recently disappeared as firms reporting a small earnings decrease demonstrate similar earnings management behavior to those reporting a small earnings increase. Research limitations/implications: This study is subject to the measurement error which is a common limitation in the earnings management literature. Practical implications: The results suggest that the users should be aware that, in addition to firms that meet benchmarks by a slight margin, firms narrowly missing benchmarks are also involved in earnings management. Originality/value: This study shows that the disappearance of the discontinuity around zero earnings and zero change in earnings should not be interpreted as a sign of no earnings management. It also explains how earnings management could have contributed to the disappearance of the discontinuities in earnings distribution.

5. Discussion and Conclusion

This study provides more insight into a recent finding by Gilliam et al. (2015) concerning the disappearance of zero-earnings discontinuity after the passage of the Sarbanes-Oxley Act. We suggest that benchmark-beating earnings management could have contributed to the disappearance of the discontinuity. Given the evidence that benchmark-driven manipulation has decreased due to the recent market scepticism about beating benchmarks by a slight margin (Koh et al., 2008; Bartov and Cohen, 2009) which implies less attention is attracted by firms that miss earnings benchmarks, firms with a pre-manged loss or earnings decrease could enjoy a quiet room to improve their earnings up to just behind earnings benchmarks. That is, restricting benchmark-beating earnings management could have two effects: (1) a decrease in the frequency of beating benchmarks by a small margin, and (2) an increase in the frequency of missing benchmarks by a small margin. This in turn could narrow the gap between the number of small profit and small loss firms resulting in the fade of the discontinuity. Therefore, the disappearance of the discontinuity could be due to upward earnings management by small loss firms. Our findings are consistent with this and suggest further that small loss firms and small profit firms show a very similar earnings management behaviour both in terms of accruals management and real activities manipulation. This finding also explains why prior studies could not find any significant difference between accruals management of small profit and small loss firms (Dechow et al., 2003). Despite the prevalent notion in the literature that small loss firms are less likely to manipulate earnings, they are actually not. In other words, failure to document a difference between firms to the right and left of zero is not due to small profit firms not managing their earnings, but it is instead due to small loss firms being similarly engaged in upward manipulation.