Detecting Earnings Management: A New Approach

Dechow, Patricia M.; Hutton, Amy P.; Kim, Jung Hoon; Sloan, Richard G.

doi:10.1111/j.1475-679x.2012.00449.x

Cited by 2,416 publications

(4,508 citation statements)

References 33 publications

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“…Several models are applied to estimate normal accruals. This study applies a modified version from the model proposed by Jones (1991), which is developed by Dechow, Sloan and Sweeney (1995). Dechow et al (1995) analyze alternative accrual-based models for detecting earnings management.…”

Section: Measuring Earnings Managementmentioning

confidence: 99%

“…This study applies a modified version from the model proposed by Jones (1991), which is developed by Dechow, Sloan and Sweeney (1995). Dechow et al (1995) analyze alternative accrual-based models for detecting earnings management. They find that the most powerful is the modified version of the model developed by Jones (1991).…”

Section: Measuring Earnings Managementmentioning

confidence: 99%

“…Thus, it is questionable whether the revenues have been earned. Increase in revenues and total accruals occurs through an increase in accrued receivables (Dechow et al, 1995). Therefore, Dechow et al (1995) propose a modified version of this model, eliminating its tendency to measure discretionary accruals with errors when revenues are opportunistically managed.…”

Section: Measuring Earnings Managementmentioning

confidence: 99%

“…Increase in revenues and total accruals occurs through an increase in accrued receivables (Dechow et al, 1995). Therefore, Dechow et al (1995) propose a modified version of this model, eliminating its tendency to measure discretionary accruals with errors when revenues are opportunistically managed. In this model, the non-discretionary accruals are estimated as Equations (3) and (4) = Net receivables for firm in year less net receivables for firm in year Following this strategy, we calculate total accruals as the difference between the variation of current assets and the variation of current liabilities, minus variation in cash flow from operations and depreciation, plus the variation in debt in current liabilities.…”

Section: Measuring Earnings Managementmentioning

confidence: 99%

“…We analyze data from 2011 and 2012, in order to guarantee that all firms applied IFRS. We estimate absolute discretionary accruals based on the Modified Jones Model (Dechow, Sloan, & Sweeney, 1995), as a proxy of earnings management, and we model the regression estimative including a country variable in order to capture the differences among the groups of countries. We use a set of firm-level variables in order to control for other factors influencing earnings management.…”

Section: Introductionmentioning

confidence: 99%

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International Financial Reporting Standards and Earnings Management in Latin America

Rathke

Santana

Lourenço³

et al. 2016

Rev. adm. contemp.

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ResumoEssa pesquisa analisa o nível de gerenciamento de resultados na América Latina após a adoção das International Financial Reporting Standards (IFRS), em comparação aos países anglo-saxões e europeu-continentais. Ela também analisa o efeito da listagem de ações nos Estados Unidos sobre a comparação do nível de gerenciamento de resultados das empresas latino-americanas com empresas estrangeiras. A literatura sobre gerenciamento de resultados considerando países menos desenvolvidos ainda está em construção, e poucos estudos focam esse tema, especialmente na América Latina, apesar de sua relevância para a economia global. A presente pesquisa preenche essa lacuna por meio do exame do nível de gerenciamento de resultados nos principais países latino-americanos que adotam as IFRS (Brasil e Chile), em comparação com os principais países anglo-saxões com tradição em IFRS (Reino Unido e Austrália), e com as principais economias da Europa Continental (França e Alemanha). Os resultados demonstram que os latino-americanos apresentam um maior nível de gerenciamento de resultados que os anglo-saxões e europeu-continentais, e esse comportamento oportunista se mantém significativo quando apenas global players com listagem de ações nos Estados Unidos são analisados. Logo, mesmo com um conjunto único de padrões contábeis de elevada qualidade (IFRS) e fortes incentivos à divulgação, as características específicas dos países produzem forte influência na forma como as IFRS são implementadas em cada país. Palavras-chave: IFRS; gerenciamento de resultados; América Latina. AbstractThis study analyzes the level of earnings management in Latin America after the adoption of the International Financial Reporting Standards (IFRS) and analyzes the role of cross-listing in the United States. The literature on earnings management in less developed countries is still under construction, and few studies focus on this issue, especially with respect to Latin America, despite its relevant role in the global economy. This paper fills this gap in the literature as it analyzes the level of IFRS earnings management regarding the first and main Latin American countries applying IFRS (Brazil and Chile), when compared to the main Anglo-Saxon countries with IFRS tradition (United Kingdom and Australia), and with the main Continental European economies (France and Germany). The results show that Latin American firms present a higher level of earnings management than Continental European and Anglo-Saxon firms, and this opportunistic behavior remains significant when only global players with cross-listing in the United States are analyzed. Thus, even with a unique set of high quality accounting standards (IFRS) and strong reporting incentives, countries' specific characteristics still play an important role in the way IFRS is implemented in each country.

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Section: Measuring Earnings Managementmentioning

confidence: 99%

Section: Measuring Earnings Managementmentioning

confidence: 99%

Section: Measuring Earnings Managementmentioning

confidence: 99%

Section: Measuring Earnings Managementmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

International Financial Reporting Standards and Earnings Management in Latin America

Rathke

Santana

Lourenço³

et al. 2016

Rev. adm. contemp.

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The Accrual Anomaly

Dechow¹,

Khimich²,

Sloan³

2012

The Handbook of Equity Market Anomalies

Self Cite

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This paper deals with the accrual anomaly first documented by Sloan (1996), i.e. the finding that the stock market prices appear to overweigh the role of accruals persistence and under-weigh the role of operating cash flow persistence. In an analysis based on Danish financial statement data it is demonstrated that different specific components of earnings have significantly different earnings persistence characteristics and that these differences are not fully reflected in share prices.In the analysis presented here the earnings persistence effect of two particular unexpected accrual components are specifically analyzed, namely the unexpected inventory accrual component and the unexpected accounts receivable accrual component, i.e. changes in accruals not motivated by corresponding changes in company activity-level. Additionally and for comparison, the accounting accruals are split into expected and unexpected accruals, estimated by the extended Jones model like in both some US-analyses and some international studies of the accrual anomaly phenomenon.It is found that the persistence of earnings is decreasing in the magnitude of the unexpected accrual components of earnings and that the persistence of current earnings performance is particularly decreasing in the magnitude of unexpected changes in inventory. The special accrual parts are related to the perceptions of earnings persistence implicit in the market prices, and it is found that the differences in earnings persistence are not rationally reflected by share price differences.

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Are loyalty shares an effective antidote against short‐termism? Empirical evidence from Italy

2020

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Corporate short-termism is arguably one of the main causes of economic, social, and environmental unsustainability. This paper studies the effectiveness of loyalty shares-shares granting extra dividends or voting rights to shareholders holding them for a specified period of time-in limiting short-termism. Although there are arguments both supporting (antidote view) and opposing (poison view) loyalty shares' effectiveness, empirical evidence on the theme is scant. By employing earnings management as a proxy for corporate short-termism and by relying on a hand-collected database of Italian firms, we find that loyalty shares can serve as an effective antidote against short-termism. This study contributes to academic literature on corporate governance and accounting and informs the debate among policymakers on loyalty shares' effectiveness.

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Detecting Earnings Management: A New Approach

Cited by 2,416 publications

References 33 publications

International Financial Reporting Standards and Earnings Management in Latin America

International Financial Reporting Standards and Earnings Management in Latin America

The Accrual Anomaly

Are loyalty shares an effective antidote against short‐termism? Empirical evidence from Italy

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