دانلود رایگان مقاله انگلیسی کیفیت درآمد ها و فروش پیش از خرید: مدیریت درآمد های واقعی در آمریکا - وایلی 2017

Abstract

Prior research provides evidence consistent with managers using real earnings management (REM) to increase earnings. This study examines whether short sellers exploit the overvaluation of firms employing REM. I find that firms with more REM have higher subsequent short interest. The positive relation between REM and short interest is more pronounced in settings where the costs associated with accrual-based earnings management are high, such as when a firm has low accounting flexibility or faces greater scrutiny from a high quality auditor. I also find some evidence that short sellers respond to REM more than to other fundamental signals of firm overvaluation. My inferences are robust to the use of propensity score matching. Collectively, my evidence suggests that short sellers not only trade on REM information, but they also trade as if they understand the substitutive nature of alternative earnings management methods. This study provides additional insight into the important role that short sellers play in monitoring managerial operating decisions and overall earnings quality.

6 CONCLUSION

I examine whether short sellers take positions in overvalued firms that engage in REM to increase earnings. This question is particularly relevant given the recent prevalence of REM activities and the negative impact of such practices on future cash flows and firm value. REM is less subject to scrutiny by corporate boards, auditors and regulators, and it is difficult for the average investor to detect REM. Investorsʼ failure to understand the negative implications of REM on future performance causes overvaluation and subsequent declines in stock prices. Prior studies find short arbitrage of the anomaly associated with accounting adjustments to earnings. However, despite managersʼ trade-offs between accrual-based earnings management and REM, we know little about whether short sellers detect and respond to managerial abnormal operating decisions as well.

My empirical results can be summarized as follows. First, I find that short sellers tend to target firms engaging in REM through sales manipulation and overproduction. More specifically, I find a negative (positive) relation between abnormal cash flows from operations (abnormal production costs) and subsequent short interest. Second, the relation is stronger for firms that have made aggressive accounting assumptions in prior years and are scrutinized by high quality auditors. This evidence is consistent with the notion that short sellers trade on REM more heavily when the costs associated with accrual-based earnings management are high. Third, I find some evidence that REM is relatively high up in short sellersʼ trading pecking order as compared to other fundamental signals of overvaluation. Fourth, my results are robust to the use of propensity score matching. Lastly, I find that long-short trading strategies based on REM through sales manipulation and overproduction produce positive abnormal returns with hedge returns being concentrated in the period around three to six months after portfolio formation.