This study examines the role of pre-IPO discretionary accruals in the valuation and underpricing of IPOs. We find that IPO offer price is unaffected whereas market closing price is positively associated with the levels of pre-IPO discretionary accruals for issuers with aggressively reported earnings. We also find that this relative over-valuation of managed earnings by the markets explains a po...

SYNOPSIS: Earnings management remains a popular topic of debate and discussion among investors, regulators, analysts, and the public. One mechanism that might mitigate earnings management is auditors’ industry expertise. Using a large sample of clients of Big 6 auditors, this research examines the association between auditor industry expertise, measured in terms of both auditor market share in ...

We investigate whether the positive associations between discretionary accrual proxies and beating earnings benchmarks hold for comparisons of groups segregated at other points in the distributions of earnings, earnings changes, and analystsbased unexpected earnings. We refer to these points as ‘‘pseudo’’ targets. Results suggest that the positive association between discretionary accruals and ...

Commonly used Jones-type discretionary accrual models applied in quarterly settings do not adequately control for nondiscretionary accruals that naturally occur due to firm growth. We show that the relation between quarterly accruals and backward-looking sales growth (measured over a rolling four-quarter window) and forward-looking firm growth (market-to-book ratio) is non-linear. Failure to co...

Prior research has investigated the association between executive equity compensation and earnings management but the evidence is not conclusive. We investigate this question using the quantile regression approach which allows the coefficient on the independent variable (equity compensation) to shift across the distribution of the dependent variable (earnings management). Based on a sample of 1...

We extend the analysis in Sloan (1996) to identify the source of information in accruals about earnings quality. Our results indicate that information in accruals about earnings quality is not limited to the current accruals analyzed by Sloan, but extends to non-current accruals. We also show that while information in accruals originates almost exclusively from asset accruals, liability accrual...

We investigate whether firms “lean against the wind”, i.e., manage earnings upward to offset aggregate (market wide) undervaluation, by examining how firm-specific measures of earnings management correlate with aggregate market conditions. Leaning against the wind has been proposed by prior research as a behavioral explanation for a negative contemporaneous relation and a positive predictive re...

This paper investigates the relationship between earnings management and quality of earnings for the bankrupt and non-bankrupt firms listed in the Tehran Stock Exchange from 2007 to 2012.The earnings quality  is measured by four separate accounting-based earnings attributes: accruals quality, earnings persistence, earnings predictability; earnings and is also examined by testing the relationshi...

This study investigates the effect of analyst coverage on both accrual-based and real earnings management. Regarding accrual-based earnings management, I find that firms followed by more analysts engage in less accruals management and that more experienced analysts seem to be more effective in constraining accruals management, consistent with the role of analysts as external monitors to manager...