Dissertation: Determinants and Consequences of Real and Accrual-Based Earnings Management

Determinants and Consequences of Real and Accrual-Based Earnings Management

Three Empirical Studies

Internationale Rechnungslegung, volume 37

Hamburg , 184 pages

ISBN 978-3-8300-7689-6 (print)
ISBN 978-3-339-07689-2 (eBook)

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This book examines various determinants and consequences of both accrual-based and real earnings management. It consists of three independent chapters, each dealing with a distinct empirical research question from this broad area.

The first chapter evaluates the impact of the recent financial and economic crisis of 2008/2009 on the earnings management behavior of firms. Particularly, two dimensions of accrual-based earnings management are considered: income smoothing and big bath accounting. The study analyzes an international sample of firms from 29 countries. The question of interest is whether firms shifted their earnings management strategies towards or away from these two earnings management strategies.

The second chapter evaluates the economic consequences of real earnings management. As opposed to accrual-based earnings management, which uses accruals to manipulate earnings, real earnings management denotes the discretionary structuring of real business transactions in order to affect the financial results. The study focuses on the specific incentive structure of avoiding losses. Several dimensions of economic consequences of real earnings management are analyzed for a comprehensive sample of listed firms in Germany, Switzerland, and Austria. The objective of the study is to analyze whether or not real earnings management activities have adverse economic consequences.

Finally, the third chapter examines the impact of corporate governance on the extent of real earnings management. The focus is on a market with a relatively lax corporate governance regime (i.e. Switzerland), as compared to the SOX regime in the United States. I hypothesize that the effect of corporate governance on real earnings management is not linear and depends on the rigor of the underlying corporate governance regime. Based on a hand-collected sample of corporate governance data from Switzerland, the study analyzes ten different corporate governance attributes and their respective impact on the real earnings management behavior of firms.

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