Thesis (Ph.D)--Mississippi State University. Richard C. Adkerson School of Accountancy. / Title from title screen. Includes bibliographical references.

Το φαινόμενο της χειραγώγησης των κερδών (earnings management) έχει απασχολήσει έντονα τα τελευταία χρόνια τις ρυθμιστικές αρχές, επενδυτές και γενικότερα τους χρήστες των εταιρικών οικονομικών καταστάσεων παγκοσμίως. Η παρούσα διατριβή σκοπό έχει τη διερεύνηση του βαθμού στον οποίο οι Ελληνικές επιχειρήσεις χειραγωγούν τα κέρδη τους με αποτέλεσμα άλλοτε να εμφανίζονται λιγότερα και άλλοτε περισσότερα από ότι στην πραγματικότητα είναι. Μέσω εφαρμογής διαφορετικών μελετών περιπτώσεων (case studies) και με τη χρησιμοποίηση νέων οικονομετρικών προσεγγίσεων για τον έλεγχο υποθέσεων τα συμπεράσματα συντείνουν στο ότι υψηλό ποσοστό ελληνικών επιχειρήσεων όντως χειραγωγούν τα κέρδη τους προκειμένου για την εξυπηρέτηση συγκεκριμένων στόχων. Πιο ενδιαφέρον δε είναι το συμπέρασμα ότι εφόσον υπάρχουν κίνητρα δεν διστάζουν να προβούν σε χειραγώγηση και άλλων λογιστικών μεγεθών όπως είναι οι πωλήσεις. / Earnings management has drawn increasing attention of regulators, accounting standard setters, and investors. The aim of this thesis is to investigate the extent of earnings management in the Greek context. By relying on superior econometric methodologies, applied in several different case studies, the conclusions confirm our hypotheses that a great percentage of Greek companies do manipulate their earnings in order to beat specific targets. More importantly, for a first time, it is provided empirical evidence that these companies, under certain circumstances, tend to manipulate other accounting variables as well i.e their reported sales.

This study investigates whether auditors respond to earnings management pressure created by analyst forecasts. Analyst forecasts create an important earnings target for management, and professional standards direct auditors to consider how this pressure could affect their clients. Using annual analyst forecasts available during the planning phase of the audit, I examine whether this form of earnings management pressure affects clients’ financial statement misstatements. Next, I investigate whether auditors respond to earnings forecast pressure through audit fees and reporting delay. I find that higher levels of analyst forecast pressure increase the likelihood of client restatement. I also find that auditors charge higher audit fees and delay the issuance of the audit report in response to pressure from analyst expectations. Finally, I find that when audit clients are subject to high analyst forecast pressure, a high audit fee response by auditors mitigates the likelihood of client misstatements.

Redovisning har till syfte att ge en verklig bild över företagets finansiella situation och fungera som ett beslutsunderlag för intressenter, detta är dock inte alltid fallet. Denna uppsats har till syfte att undersöka om aktiebolag, noterade på svenska börser, med avsättningar för garantiåtaganden använder sig av dessa avsättningar som ett verktyg för resultatmanipulering. Uppsatsen har undersökt hur företag inom tillverkningsbranschen sätter av för framtida garantiåtaganden samt om det finns någon synbar systematik i dessa avsättningar. För att undersöka om så var fallet, beräknades korrelationen mellan olika variabler från företagens årsredovisningar. Beräkningarna kom att göras i två grupper utifrån hur företag i uppsatsens urval redovisat sina garantiåtaganden i årsrapporten. Studien kom fram till att det starkaste sambandet för svenska aktiebolag i tillverkningsbranschen förekommer mellan garantiavsättning och nettoomsättning eller mellan årets garantiavsättning och föregående års garantiavsättning. Att en stor andel av företagen sätter av i enlighet med årets försäljning är något som ligger i linje med vad flertalet av företagen själva anger i årsredovisningen. För att undersöka om företagen använts sig av garantiåtaganden som ett verktyg för resultatmanipulering undersöktes om företagen satt av onormalt stora eller små garantiavsättningar. I denna studie bedömdes 42 av 104 garantiavsättningar som onormala. Det var dock inget av de undersökta företagen som under något utav åren gick från ett negativt till ett positivt resultat efter att den onormala garantiavsättningen korrigerats till en mer normal garantiavsättning. Denna studie gav således inget direkt resultat om huruvida svenska börsnoterade företag inom tillverkningsindustrin använder sig av garantireserver som ett verktyg för resultatmanipulering, däremot kan det spekuleras kring varför vissa företag har så stora skillnader i sina avsättningar under åren.

This thesis aims to investigate whether frequency of mandatory financial reporting affects management focus on long-term growth. Evidence from the market has illustrated how managers within listed firms sometimes strive to meet market expectations on the latest reported earnings regardless of long-term consequences (see for example Graham, Harvey & Rajgopal, 2005; Grinyer, Russell & Collison, 1998). Yet, the existing literature has neglected to research market pressure in terms of financial reporting frequency and its proposed influence on long-term growth. This study seeks to find if a more frequent mandatory reporting affects managers to more often sacrifice long-term growth in terms of reduced R&D investments. By comparing six different stock exchanges with different interim reporting requirements, this study empirically examines the hypothesized relationship, using a robust multiple regression analysis based on 320 observations during the sample period 2008-2012. The statistically significant results show a negative correlation, suggesting that firms that are required to disclose quarterly reports invest less in R&D than firms that are only required to disclose semi-annual reports. A negative correlation is observed for the whole sample as well as for the five sectors individually. The results provide additional empirical evidence to the research fields of financial reporting, managerial myopia and earnings management.

This dissertation consists of three stand-alone essays on fundamental uncertainty, stock return volatility and earnings management. The first study investigates the role of information about firms?? fundamentals contained in analysts?? forecasts (which I label ??non-accounting information??) in understanding stock return volatility. When combined with Ohlson??s (1995) linear information dynamics, the accounting version of the Campbell-Shiller model (Campbell and Shiller 1988a, 1988b; Vuolteenaho 2002) implies that if current non-accounting information is more uncertain, then future stock returns are expected to be more volatile. The empirical evidence supports the theoretical predictions, and the results are valid for measures of both systematic and idiosyncratic volatility. Additional analysis yields some evidence that both favourable and unfavourable news from non-accounting information increases future stock return volatility. Overall, the results highlight the value relevance of information in analysts?? forecasts beyond what is contained in the current financial statements. The second essay extends the theoretical framework of Callen and Segal (2004) and Vuolteenaho (2002) to investigate the association between the uncertainty of accrual information and stock return volatility. The empirical evidence supports the theoretical prediction that the extent of uncertainty in accounting accruals is increasing with the volatility of future stock returns, and the results are valid for measures of both systematic and idiosyncratic volatility. However, when accrual variability is decomposed into fundamental and unexpected portions, I find that the positive relationship between accrual variability and future stock return volatility is dominated by the fundamental component of accrual variability. The findings therefore suggest that the market places little weight on information conveyed by that component of accounting accruals that is most likely to reflect accounting choices, implementation decisions and managerial opportunism. The final essay argues that the presumed articulation among accruals, cash flows and revenues does not capture decisions on expected accruals when large external financing activities are present. The analysis provides evidence that managers?? ??normal?? operating decisions associated with net external financing activities are likely to lead to measurement errors in unexpected accruals that are part of expected accruals, and erroneous conclusions that significant earnings management exists when in fact there is none. This is especially pertinent in cases where the partitioning variable used to identify instances of earnings management is supposed to be uncorrelated with external financing, when in fact it is correlated. The results underscore the importance of additional specification tests being conducted to control for estimation biases in unexpected accruals associated with external financing. I suggest the use of matched-firm approach using industry and external financing matches in order that reliable and warranted inferences are made.

Earnings and book value are commonly used as the basis for firm valuation. However, the reliability of earnings, as indicated by earnings management, may affect its relevance in determining firm value. This thesis investigates the link between earnings management and firm valuation by assessing the impact of earnings management on the value-relevance of earnings and book value.Three different sources of earnings management are investigated: total discretionary accruals, short-term discretionary accruals, and long-term discretionary accruals. Total discretionary accruals are estimated using the Jones model (Jones 1991). New models are developed to estimate short-term and long-term discretionary accruals. These models enable investigation of the differential impact of earnings management via short-term versus earnings management via long-term discretionary accruals. The primary proposition is that earnings management via long-term discretionary accruals has a greater impact on the value-relevance of earnings and book value than earnings management via short-term discretionary accruals.For firm’s whose discretionary accruals indicate earnings management, the value relevance of earnings is expected to be lower than for firms without earnings management. Moreover, in the presence of earnings management, it is expected that there will be a shift from a reliance on earnings to a reliance on book value in the valuation process. This would be reflected in a decrease in the value-relevance of earnings and an increase in the value-relevance of book value.This thesis provides evidence that earnings management plays a role in the valuation process. A major contribution of this study is the development of models to enable the estimation of short-term and long-term discretionary accruals, thereby extending the earnings management literature by addressing the differential effect of short-term versus long-term discretionary accruals. The results clearly demonstrate that low reliability of information reduces its value-relevance. This link between the integrity of accounting information and its usefulness to market participants supports the need for ongoing regulatory activity to improve the integrity of the financial reporting process.

This thesis examines the extent to which benchmark beating by Australian firms around the earnings level and earnings changes thresholds can be reliably interpreted as evidence of earnings management. A number of recent academic papers challenge the earnings management explanation for the observed kinks in the distribution of net Income. In response to this criticisms, this thesis is motivated to conduct tests of earnings management with a refined methodology of selecting a subset of firms immediately above the threshold that have a priori incentives to achieve the benchmark. This approach allows for investigations to focus on benchmark beating observations where earnings manipulations would be more prevalent and thereby provide a powerful test for the existence of opportunistic reporting. The paper uses a number of unexpected accruals measures including the Kothari et al. (2005) performance matched models. In testing the hypotheses, this thesis utilises two approaches which were; the regression approach and the test of difference of means approach. Based on a broad sample drawn from all listed Australian firms for the years 1995-2007, small profit firms and small increase firms with high price-to-sales ratio were found to have evidence consistent with opportunistic benchmark beating behaviour. Similar results are also documented for benchmark beating firms with low book-to-market (high market-to-book) ratio. This thesis also finds that firms with equity offering incentives who reported improvement in earnings display unexpected accruals consistent with earnings management. In addition, the accounting behaviour of firms which previously incurred a loss is consistent with earnings management explanation. Firms with long strings of earnings increases also appear to use accounting discretion in order to avoid earnings deterioration. Similarly, evidence of earnings management are also displayed by small profit firms which have consistently reported negative earnings. Finally, this thesis provides evidence that resolves the apparent paradox that benchmark beating is evidence of earnings management which is devoid of the statistical artefact argument posited by Durtschi and Easton (2005) and Durtschi and Easton (2008).

Thesis (Ph. D.)--University of Hawaii at Manoa, 2004. / Includes bibliographical references (leaves 123-128).

Empirical studies have found that managers choose debt rather than equity to avoid EPS dilution and buy back outstanding shares to boost EPS, I thus explore the resulting effect of EPS on leverage. A firm’s leverage is negatively influenced by the level of its EPS. I also find that fluctuations in EPS have large effects on leverage and these effects persist for at least a decade. Besides, the negative impact of EPS on leverage becomes much stronger after the passage of SOX, in which period managers engage in more actions of debt-equity choices or stock repurchases with the sole purpose of manipulating EPS. Furthermore, managers’ equity incentives and corporate governance are two economic mechanisms through which EPS negatively influences leverage.