Research design issues in earnings management studies

This paper discusses trade-offs associated with three research designs commonly used in the earnings management literature: those based on aggregate accruals, those based on specific accruals and those based on the distribution of earnings after management. A key theme of the paper is that empirical...

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Bibliographic Details
Published in:Journal of accounting and public policy 2000, Vol.19 (4), p.313-345
Main Author: McNichols, Maureen F.
Format: Article
Language:English
Subjects:
Accounting
Business accounting
Distribution
Earnings
Financial reporting
Management
Statistical analysis
Studies
Trade-off
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Summary:This paper discusses trade-offs associated with three research designs commonly used in the earnings management literature: those based on aggregate accruals, those based on specific accruals and those based on the distribution of earnings after management. A key theme of the paper is that empirical procedures for aggregate accruals studies lag both our theories of incentives to manage accruals and our institutional knowledge of how accruals behave. Empirical findings suggest that aggregate accruals models that do not consider long-term earnings growth are potentially misspecified and can result in misleading inferences about earnings management behavior. It is suggested that future progress in the earnings management literature is more likely to come from application of specific accrual and distribution-based tests than from aggregate accruals tests.
ISSN:0278-4254
1873-2070
DOI:10.1016/S0278-4254(00)00018-1