This paper examines the implications of using the absolute value of discretionary accruals when testing for earnings management. First, we analytically develop the mean and variance of the distribution of absolute discretionary accruals, and show that the expected value is an increasing function...

This paper investigates potential cases of earnings management by observing the pattern of quarterly earnings changes. We identify firms for which the sign of (seasonal) earnings changes observed in interim quarters reverses in the fourth quarter. We hypothesize that a firm performing poorly in...

This paper provides evidence on the characteristics of firms that include pro forma earnings information in their press releases and on whether the usefulness of pro forma earnings to investors varies systematically with these characteristics. Using a sample of 249 press releases from 1997-99,...

This paper provides additional evidence on earnings management via the deferred tax asset valuation allowance account (VAA). Earlier publications that do not find evidence of earnings management via the VAA examine contractual incentives using broad samples. A more recent publication finds...

Prior research has documented a "kink" in the earnings distribution: too few firms report small losses, too many firms report small profits. We investigate whether boosting of discretionary accruals to report a small profit is a reasonable explanation for this "kink". Overall, we are unable to...

This study investigates whether opportunistic earnings management affects the value relevance of net income and book value in determining stock price. We document a decrease in the value relevance of earnings in the year of an equity offering for a group of firms that exhibit ex post evidence of...

Existing literature consistently documents a relation between book-tax differences and future financial performance. Specifically, Hanlon (2005) finds that large book-tax differences are associated with lower earnings persistence. I contend that one reason the tax information contained in...

In the wake of Enron-era scandals, practitioners warn that earnings guidance invites earnings management as executives scramble to achieve previously announced targets. Concurrent academic studies show that company executives manage earnings to achieve benchmark targets. This study attempts to...

This study aims to analyze the predictive power of current accruals and cash flows for future earnings and how IFRS adoption have affected this power, for general firms and for firms with relative higher and lower levels of accruals. Using a sample of 10 countries that have adopted IFRS in 2005,...

EU gave the opportunity to each Member State to oblige/allow non-listed (i.e. private) companies to use IFRS. Considering a sample of Italian private companies which switched to IFRS in the time span from 2005 to 2008, we compare financial reporting quality between IFRS adopters and a matched...