Accounting Commons^™

Moving Towards Principles-Based Accounting Standards: The Impact Of The New Revenue Standard On The Quality Of Accrual Accounting, He, Huiyu

Dissertations and Theses Collection (Open Access)

The new revenue standard (ASU 2014-09, codified in ASC 606 and ASC 340-40) establishes a comprehensive framework on accounting for contracts with customers and replaces most existing revenue recognition rules. The new guidance removes the inconsistencies and weaknesses of legacy guidance, while is more principles-based and requires more managerial judgements. Using as-reported data from structured filings to construct aggregate accruals that are potentially affected by the new revenue standard (i.e., sales-related accruals), I find that the new revenue standard increases the quality of sales-related accruals, as measured by future cash flow predictability. The increased cash flow predictability comes not only …

Earnings Management Strategy Of Pension Plan Changing Firms, Wei Chen

Accounting Dissertations

This study investigates the earnings management strategy of defined benefit pension plan changing firms. I provide the evidence that managers engage in cash conservation activities and real earnings management in response to the changes in funding status and pension income through the manipulation of pension assumptions before and after pension freezing. These results suggest that earnings management through pension assumptions affects the normal operations of the firm through real activities during the defined benefit plan pension freezing. I also provide evidence that pension termination firms exhibit a lower level of discretionary accruals after the termination, suggesting the downsizing of a …

The Relationship Between Perceived Fairness In Executive Compensation And Managerial Behavior, Kainan Xiong

Theses and Dissertations (Comprehensive)

This dissertation examines the relationship between the perceived fairness in executive compensation and the level of earnings management on the one hand and the propensity for voluntary turnover on the other. Executive compensation has attracted significant academic attention for more than two decades. The ratcheting-up of executive pay raises questions about its determinants and whether the pay-setting process effectively promotes managerial behavior that aligns with the interests of shareholders. Alternatively, executives may simply extract rents at the expense of shareholders because of the informational advantage that they have and their influence over the board of directors, particularly the compensation committee …

Three Essays On The Impacts Of Tax Planning And Earnings Management On The Informativeness Of Taxable Income, Book Income, And Cash Flows From Operations, Yong Qiang Chen

Theses and Dissertations (Comprehensive)

This dissertation comprises three independent but highly related essays that investigate the effects of tax planning and/or earnings management. The first essay investigates how high tax planning and/or aggressive earnings management affect the relative and incremental value-relevant information of taxable income, book income, and cash flows from operations (CFO). Regarding the effects of tax planning, first, I postulate and show that high tax planning reduces the relative and incremental information of taxable income to CFO. Second, high tax planning increases the relative and incremental information of CFO to the combined information set of taxable income and book income. Third, high …

The First Sign: Detecting Future Financial Fraud From The Ipo Prospectus, Lisa Spadaccini Anderson

Graduate Theses and Dissertations

In this study, I examine whether it is possible to predict future financial statement fraud using disclosure content prior to the fraud. Specifically, I employ a machine learning algorithm to construct a unique measure based on the lexical cues embedded within a firm’s first public disclosure, the Management’s Discussion and Analysis section of the S-1 filing, during the Initial Public Offering process. I use this measure to predict whether a firm that is not already committing fraud will commit fraud within five years of the Initial Public Offering (IPO) that results in an Accounting or Enforcement Release (AAER). I find …

The Effect Of Investor Sentiment On Earnings Management, Lin Chen

Accounting Dissertations

The association between investor sentiment and corporate reporting decisions/outcomes has been recently examined in the accounting and finance literature. As an important outcome of corporate reporting decisions, earnings management (EM) may be affected by investor sentiment. In this dissertation, I examine two research questions. The first is whether investor sentiment is associated with the propensity of firms’ engaging in the two primary forms of EM: accrual earnings management (AEM) and real earnings management (REM). The second question is whether firms’ internal governance strength and external audit quality would moderate the association between investor sentiment and AEM as well as REM. …

Earnings Management Of Leaders And Laggards, Candice Roche Boucree

LSU Doctoral Dissertations

In this study, I examine whether earnings management varies by a firm’s life-cycle stage relative to its industry life-cycle stage. This relationship, measured as Leaders, Match, or Laggards, concerns strategic groups with different operating strategies. Leaders (Laggards) employ a pioneering (an imperfect imitation) strategy. Overall, I find evidence that Leaders engage in less earnings management than do Match firms. Specifically, Leaders (Laggards) engage in less (more) accruals-based earnings management (AEM) than do Match firms, and Leaders engage in less real-activities earnings management (RAM) than do Match firms. Within firm life-cycle stages, I find additional evidence …

Ceo Network Centrality And Earnings Management, Huan Qiu

Doctoral Dissertations

This study investigates the relationship between CEO network centrality, choice of earnings management, and the consequences for the period from 1998 to 2016. From our empirical analysis, we find that CEOs with higher network centrality are more likely to use accruals-based earnings management, but less likely to use real earnings management to manage earnings upward in the current year. Although the use of accruals-based earnings management normally results in bad economic consequences for firms, CEO network centrality is associated with better (at least not worse) earnings quality, after controlling the use of accruals-based earnings management. As for longterm economic performance, …

Stock Repurchases As The Earnings Management: An Unintended Consequence Of The 2003 Dividend Tax Cut, Xiang Gao

Open Access Theses & Dissertations

I examine the impact of the 2003 dividend tax cut (Jobs and Growth Tax Relief Reconciliation Act, JGTRRA) on firms using stock repurchases for earnings per share (EPS) manipulation. Prior to 2003, dividends were taxed at the individual's income tax rate, which usually was ranged from 28 percent to 50 percent, compared to 20 percent tax rate on capital gains. In May 2003, with the passage of the JGTRRA, the dividend tax was cut significantly to 15 percent for the majority of individual income tax brackets, which is equal to the tax rate of capital gain. Consistent with Blouin et …

Corporate Political Activity, Ceo Hubris, And Earnings Management, Abbey Rozanski

Chancellor’s Honors Program Projects

No abstract provided.

Does Assurance Matter? Evidence From U.S. Financial Institutions, Ashley Warwick Douglass

Graduate Theses and Dissertations

In this paper, I explore the determinants and consequences of the level of assurance that a bank selects. Using a sample of small, privately held U.S. (United States) financial institutions (banks), I find that two differing types of banks are more likely to purchase more assurance. First, larger banks that are experiencing growth purchase relatively more assurance than other banks. Second, more complex banks with lower returns on assets, losses, and higher leverage are more likely to purchase an audit than a lower level of assurance. This may indicate the influence of regulators on banks’ assurance purchasing decisions. I also …

Earnings Management And Bargain Purchase Gains, Yan Yan

Dissertations, Theses, and Capstone Projects

This dissertation consists of two chapters that investigate earnings management through the recognition of bargain purchase gains in the banking industry and in other industries.

Chapter 1 In business acquisitions where the fair value of net assets acquired exceeds the consideration paid, acquiring firms recognize bargain purchase gains under ASC 805. The determination of the fair value of net assets at date of acquisition gives acquiring management considerable flexibility in judgments. In this chapter, I focus on bargain purchase acquisitions in the banking industry, and find that acquirer utilizes bargain purchase gains to avoid negative earnings and earnings decline. The …

The Effect Of Creative Culture On Aggressive Financial Reporting, Ryan Guggenmos

Doctoral Dissertations

Chief Executive Officers identify creativity as the leadership competency most desired in business today (IBM 2010). As companies recognize the benefits of creativity and innovation, managers are increasingly looking to build creative cultures within their organizations. However, research in psychology suggests that there may be unintended negative consequences to these attempts. In this study, I predict and find that innovative company culture primes creative thought and, in turn, leads to higher levels of real earnings management (REM) behaviors. Using construal level theories of psychological distance proposed by Trope and Liberman (2010), I design and test both a lower-level and a …

10b5-1 Plans And Earnings Management By High-Level Executives, Joshua A. Thomas

CMC Senior Theses

Using historical firm financial and insider trading information, this paper examines whether high-level insiders manipulate earnings ahead of their own 10b5-1 equity transactions. The empirical evidence suggests that high-level executives appear to manipulate earnings through real activities such as abnormal discretionary expenditures and abnormal cash flows from operations to influence equity prices ahead of their own transactions under Rule 10b5-1. Evidence also suggests that executives appear to be unlikely to engage in earnings management through highly scrutinized means such as accruals. An interpretation of these results is that high-level executives may be using 10b5-1 plans as an offensive tool to …

Fair Value Measurements And Earnings Management: Evidence From The Banking Industry, Xiaolu Xu

Accounting - Dissertations

I examine the association between fair value measurements and bank earnings management using financial data for a sample of U.S. bank holding companies from 2009 to 2012. I follow the methodology in Beatty et al. (2002) and find that banks reporting higher recurring basis fair values, especially level 2 fair values and banks reporting increased fair values are more likely to report small earnings increases both in the current year and one-year ahead after controlling for discretionary loan loss provisions, discretionary security gains and losses, and other bank-specific characteristics. By decomposing the fair values into different types, I find that …

Income Classification Shifting And Financial Analysts’ Forecasts, Shanshan Pan

LSU Doctoral Dissertations

Income classification shifting involves opportunistically misclassifying core expenses into nonrecurring items in order to boost core earnings. Recent studies have documented large sample evidence of its existence (e.g. McVay 2006; Fan et al.,2010; Barua et al.,2010). Managers engage in income classification shifting because they believe the market in general and financial analysts in particular focus on core earnings. If financial analysts are experts in forecasting permanent earnings, they should be expected to identify reported core earnings that have been inflated through classification shifting and revise their future earnings forecast accordingly. Consistent with my prediction, I find that given the same …

Small Audit Firms And Earnings Manipulations, Huichi Huang

Business Administration - Dissertations

This paper examines the monitoring role of small audit firms (i.e., those with 100 or fewer clients who are subject to different levels of oversight by the PCAOB) on earnings management. Specifically, I examine the relationship between earnings manipulations and the use of small audit firms. I find that small audit firms are less able to constrain managers' opportunistic use of discretionary accruals. However I find no evidence that small audit firms are associated with real activities manipulation. By investigating a specific group of audit firms that are the smallest in the audit market, this study extends our understanding of …

Clawback Provisions: How Sharp Are The Claws? An Analysis Of The Deterrence Effectiveness Of Voluntary Clawback Provisions, Allison Kristina Beck

Doctoral Dissertations

This paper investigates the effectiveness of voluntary clawback provisions as a deterrent for earnings management behavior. The Dodd-Frank (DF) Bill signed into law July 21, 2010 mandates that the SEC adopt a rule requiring all U.S.-listed companies to implement clawback provisions that recapture excess compensation received by executives on the basis of a faulty financial statement filing with the SEC that later must be restated. Implicitly, the DF regulation assumes that clawbacks will successfully constrain financial misreporting and that a “one-size-fits-all” approach is best. In contrast with prior research that has investigated factors associated with a firm’s decision to adopt …

Stock Liquidity, Price Informativeness, And Accruals-Based Earnings Management, Jing Fang

LSU Doctoral Dissertations

We examine the effect of stock liquidity on accruals-based earnings management. Finance literature suggests that stock liquidity leads to price efficiency. If prices are efficient, more future earnings should be reflected in current prices. Therefore, gain from shifting accruals across periods should be low and managers should have less incentive to manage earnings. We find that higher stock liquidity is associated with higher future earnings response coefficient and lower accruals-based earnings management. Our finding has important implication for the decline in accruals-based earnings management during 2001-2005 documented in prior study. Our additional trend analysis suggests that instead of SOX and …

The Role Of Dividend Policy In Real Earnings Management, Nan Liu

Accountancy Dissertations

Given the importance of historical dividend policy to firms, I investigate whether dividend payers manipulate earnings through real activities to smooth dividend levels and dividend payout ratios. Using Compustat’s Execucomp database, I find evidence that dividend policy impacts both upward and downward real earnings management. I find that payers manipulate earnings upward through real activities to mitigate the shortfall of pre-managed earnings relative to prior year dividends when pre-managed earnings are lower than dividends paid in the prior year, suggesting that dividend levels are an important earnings benchmark. I document a stronger relationship between changes in pre-managed earnings and real …

The Effect Of Regulatory Pressures On Earnings Management Behavior Of Nonprofit Hospitals, Brian A. Vansant

Accountancy Dissertations

My study examines the effect of regulatory pressures on the earnings management behavior of nonprofit (i.e., tax-exempt) hospitals. Prior research provides evidence that managers of nonprofit hospitals manage reported earnings to a range just above zero profit in order to conform to regulator low or zero profit expectations. I extend this research by investigating how reported performance on another accounting measure important to regulators, (i.e., charity care), further explains the earnings management behavior of nonprofit hospitals. Specifically, I develop theory to predict that nonprofit hospitals use discretionary accruals to manage positive earnings toward regulator low profit expectations less aggressively when …

Enron Vs. General Electric: Is Earnings Management Worth The Risk?, Brett Robertson

Honors Theses

The main objective of this paper is to provide a review on why companies use earnings management and the benefits and consequences as a result. There is a large grey area between aggressive accounting and outright fraud and this paper focuses on narrowing down that area so companies know when to stop. General Electric is an example of a company that used earnings management to its advantage because they used it cautiously. However, there is the other side where earnings management started off small and ended up spiraling out of control like with Enron. This paper will examine both how …

Effects Of Ethical Context On Earnings Management, Organizational-Professional Conflict And Organizational Commitment In Chinese Enterprises, Zhihong Wang

Theses & Dissertations

This study investigates the effects of the organizational ethical context (ethical climate and ethical culture) in Chinese enterprises on accounting professionals’ perceptions of earnings management, organizational-professional conflict (OPC) and affective organizational commitment (OC). We also test the effects of Machiavellianism on these factors, and the interactive effects of Machiavellianism and ethical context on OPC and OC. The findings, based on responses from 89 accounting professionals employed by Chinese enterprises at staff, supervisor and manager levels, indicate that in general the perceived ethical context did not affect judgments of the acceptability of earnings management. However, as anticipated, perceptions of a stronger …

Rate Regulation And Earnings Management: Evidence From The U.S. Electric Utility Industry, Joseph Ben Omonuk

LSU Doctoral Dissertations

Although accounting research continues to focus on earnings management, few studies have done so within the context of a single industry, and only one study to date (Paek 2001) has investigated this phenomenon within the context of U.S. rate-regulated electric utilities. Most utilities are viewed as natural monopolies, and therefore are subjected to rate regulation. These firms are permitted to earn a prescribed rate of return on an approved rate base. Although utilities are subjected to greater scrutiny than non-regulated public companies, regulatory restraint may create incentives to manage earnings (Healy and Whalen 1999), especially coincident with a utility’s request …

Sec Regulation Of Corporate 10k Filing Dates: The Effect On Earnings Management And Market Recognition, Robert W. Russ

Theses and Dissertations

In November 2002, the Securities and Exchange Commission released a final ruling regarding a filing requirement change. The proposed requiredment change was for domestic companies to file annual and quarterly reports within 60 and 30 days, respectfully. This requirement was recommended for companies with a market value of at least $75 million and would reduce by 30 days the time allowed to file these reports. The Wall Street Journal article announcing this proposal stated the change was an effort to address some of the problems arising from accounting scandals such as the Enron scandal of 2001. A potential added benefit …

Do Speculative Short Sellers Detect Earnings Management?, Yan Zhang

LSU Doctoral Dissertations

This paper examines empirically whether sophisticated speculative short sellers can detect earnings management by targeting stocks with large income-increasing discretionary accruals and high total accruals. Prior research indicates that total accruals are overpriced and this overpricing is largely attributable to the mispricing of discretionary accruals. Recent studies show that neither auditors nor financial analysts utilize information in accruals. Using samples of 11,537 firm-quarter observations and 5,118 firm-year observations for 1,146 12/31 non-financial NYSE firms from 1992 to 1999, I find supporting evidence those speculative short sellers can detect earnings management using financial accounting information disclosed in 10-Q and 10-K report. …

The Impact Of Institutional Stock Ownership On A Firm's Earnings Management Practice: An Empirical Investigation, Santanu Mitra

LSU Doctoral Dissertations

This study examines whether institutional investor shareholdings inhibit firm managers from engaging in earnings management practice. It investigates the empirical association between discretion/flexibility available to managers in managing abnormal non-cash working capital accruals and institutional stock ownership for a sample of 386 New York Stock Exchange firms over a period of 8 years, from 1991 through 1998. The differential institutional influence on the level of accrual management of firms having different information environment, S&P 500 versus non S&P 500, is also examined to see whether the difference in information environment of these two sets of firms has any effect on …