Does Stock Liquidity Affect Accrual‐based Earnings Management?

Huang, Kelly; Lao, Brent; McPhee, Gregory P.

doi:10.1111/jbfa.12236

Cited by 31 publications

(25 citation statements)

References 90 publications

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“…20 On a related note, it has also been documented that liquidity may affect managers' incentives to exercise discretion over accruals. For example, Huang et al (2016) find a positive relation between liquidity and signed discretionary accruals; they identify the effects of liquidity on takeover pressure and equity compensation as possible explanations for their findings. 21 Following previous literature (e.g., Boehmer and Kelley, 2009), we use the lagged value of the market variables (turnover and illiquidity ratio) to avoid endogeneity issues.…”

Section: (Iii) Relating Managerial Discretion In Accruals and Informamentioning

confidence: 85%

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Managerial Discretion in Accruals and Informational Efficiency

Perotti

Windisch²

2017

Business Fin & Account

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In this paper, we examine the relation between managerial discretion in accruals and informational efficiency. We measure managerial discretion in accruals by the absolute value of abnormal accruals. Assuming that efficient prices follow a random walk, we measure informational efficiency by using stock return variance ratios. We find that the absolute value of abnormal accruals is negatively associated with the price deviation from a random walk pattern, estimated in the 12‐month period subsequent to the accrual reporting; hence, future informational efficiency increases with the extent to which managers exercise discretion over accruals. The results are consistent with the view that discretionary accruals, on average, convey useful information to investors and facilitate the price convergence to its fundamental value. Our findings are robust to a battery of tests, including tests to validate both our measures of informational efficiency and our measure of managerial discretion in accruals.

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Section: (Iii) Relating Managerial Discretion In Accruals and Informamentioning

confidence: 85%

“…For example, Huang et al. () find a positive relation between liquidity and signed discretionary accruals; they identify the effects of liquidity on takeover pressure and equity compensation as possible explanations for their findings.…”

mentioning

confidence: 97%

Managerial Discretion in Accruals and Informational Efficiency

Perotti

Windisch²

2017

Business Fin & Account

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“…Therefore, managers must consider the moment and the firm's situation as they manage earnings since earnings are eventually priced by the market (Sloan, 1996). Several are the incentives for management: managers' pay (Ali & Zhang, 2015;Dechow & Sloan, 1991;Jensen & Meckling, 1976), covenants (Dichev & Skinner, 2002;Fields et al, 2001;Nardi & Nakao, 2009;Sincerre, Sampaio, Famá, & Santos, 2016), regulatory issues (Huang, Lao, & McPhee, 2017;Rezende & Nakao, 2012), market expectations and valuation (Abarbanell & Lehavy, 2003;Almeida, Lopes, & Corrar, 2011;Buchner et al, 2017;Martinez, 2011;Mota et al, 2017), which are the object of analysis for empirical researches.…”

Section: Earnings Management and Investor Sentimentmentioning

confidence: 99%

Investor Sentiment and Earnings Management: Does Analysts’ Monitoring Matter?

Miranda

Machado

Macedo

2018

RAM, Rev. Adm. Mackenzie

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It is not allowed the use for commercial purposes. Este artigo pode ser copiado, distribuído, exibido, transmitido ou adaptado desde que citados, de forma clara e explícita, o nome da revista, a edição, o ano e as páginas nas quais o artigo foi publicado originalmente, mas sem sugerir que a RAM endosse a reutilização do artigo. Esse termo de licenciamento deve ser explicitado para os casos de reutilização ou distribuição para terceiros. Não é permitido o uso para fins comerciais.Nov 06];2(3):313-32. Available from:

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“…Ascioglu, Hegde, Krishnan, and Mc-Dermott (2012) suggest that firms exhibiting greater earnings management are associated with lower market liquidity. However, Huang, Lao, and McPhee (2017) show that stock liquidity increases accrual-based earnings management. Thus, we cannot predict the sign of the relationship between rot M K T and the incentive to manage earnings.…”

Section: Methodsmentioning

confidence: 97%

An international comparison of incentives for earnings management in order to meet analysts forecasts

Jarne

Gastón

2021

RC-SAR

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Una comparación internacional del incentivo para manipular el resultado con el objetivo de alcanzar los pronósticos de los analistas. Investigaciones previas han evidenciado que cuando los resultados alcanzan, o superan, los pronósticos de los analistas, el mercado reacciona positivamente, mientras que, cuando dichos pronósticos no son alcanzados, la reacción del mercado es la contraria. Por ello, los pronósticos se convierten en metas a batir y, tal como la literatura ya ha contrastado, surge un incentivo para la manipulación del resultado. En este contexto, el presente trabajo va más allá, evidenciando que la reacción positiva o negativa es de diferente magnitud según los mercados y que ello explica que la fuerza con la que las empresas perciben el incentivo a manipular los resultados para alcanzar dichos pronósticos también sea diferente según el mercado en el que cotiza. Comparando seis mercados, obtenemos que el incentivo es más potente cuanto mayor es el premio por cumplir los pronósticos, o la penalización por no hacerlo. Previous investigations have shown that when earnings meet analysts’ forecasts, the market reacts positively, and when these forecasts are not reached, the market reacts negatively. For this reason, forecasts become goals to beat, and as the literature has revealed, this creates an incentive for earnings management. The present paper extends prior research, providing evidence that the magnitude of the reward (penalty) for companies meeting (failing to meet) earnings forecasts differs depending on the market. In addition, it reveals that the strength of the incentive for companies to manage their earnings differs depending on the market in which they are listed. We compare six stock markets and find that the most powerful incentives arise when the reward for meeting the forecasts or the penalty for not doing so is greater.

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Does Stock Liquidity Affect Accrual‐based Earnings Management?

Cited by 31 publications

References 90 publications

Managerial Discretion in Accruals and Informational Efficiency

Managerial Discretion in Accruals and Informational Efficiency

Investor Sentiment and Earnings Management: Does Analysts’ Monitoring Matter?

An international comparison of incentives for earnings management in order to meet analysts forecasts

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