Securitisation transactions, real manipulation and stock market valuation

Recent corporate financial scandals show that managers, financial intermediaries and financial statement users are unable to assess correctly the information disclosed in firms' annual reports. In this paper, we present empirical evidence consistent with the use of securitisation gains by managers for real manipulation of reported earnings. First, the estimation of the simultaneous equation approach using the seemingly unrelated regression (SURE) method (Zellner, 1962) shows that managers use discretionary accruals and securitisation gains as substitutes to manage their reported earnings. Additional analysis shows that securitisation gains are used for real smoothing purposes. Finally, the association between securitisation gains and the probability to issue a qualified opinion by the auditor indicates that auditors do not signal the negative consequences of extreme values of gains to outsiders through their opinion. Moreover, using panel data estimation, the value of the disclosed gains seems to be mispriced by investors as reflected in security returns.