Research design issues in earnings management studies

By Maureen F. McNichols. 2000

1,031 citations recorded by the source corpus.

This paper discusses trade-oAs 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. ” 2000 Elsevier Science Ltd. All rights reserved.

Subfields: Accounting, Economics and Econometrics, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/a280a330103fb85462d48c6fdfd84ba431dd9ea3

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Citations in the corpus

Discretionary Accruals and Earnings Management: An Analysis of Pseudo Earnings Targets (2006, neutral): “O’Brien (1988) and Brown (1991) suggest that the single-most recent analyst forecast is more accurate in predicting actual earnings than the consensus mean forecast.”
Quantifying Managerial Ability: A New Measure and Validity Tests (2012, background): “Milbourn (2003) documents that more able managers have higher pay-for-performance sensitivities, using CEO tenure, prior media mentions, appointment from outside of the firm, and prior industry-adjusted stock returns as a proxy for managerial ability.”
Ownership Structure, Business Group Affiliation, Listing Status, and Earnings Management: Evidence from Korea (2006, neutral): “We include these variables to control for a firm’s inherent accruals, reversals of prior year accruals and growth in earnings (Kasznik 1999; McNichols 2000; Klein 2002; Haw et al. 2004).”
Intra-year shifts in the earnings distribution and their implications for earnings management (2007, background): “The main advantage of using BD/Hayn’s methodology of inferring earnings management from cross-sectional distribution of earnings is that of avoiding omitted correlated variables problems inherent in measures of discretionary accruals (McNichols, 2000).”
Earnings management within Europe: the effects of member state audit environment, audit firm quality and international capital markets (2006, methodology): “Three different approaches are commonly used to detect earnings management: (i) aggregate accruals models; (ii) specific accruals models; and (iii) frequency of distribution approaches (McNichols, 2000).”
Trading incentives to meet the analyst forecast (2006, background): “1 Hypothesis development 1.1 Model In general, it is difficult to provide incontrovertible evidence that reported earnings in a given situation reflect active earnings management and not genuine firm performance (e.g., McNichols, 2000).”
Earnings management under German GAAP versus IFRS (2005, methodology): “On the other hand, Dechow et al. (1995) and McNichols (2000) report that firms with abnormally high (low) earnings have positive (negative) shocks to earnings that include an accrual component and thus, firms with high (low) earnings tend to have high (low) cash flows and high (low) accruals.”
Ultimate Ownership, Income Management, and Legal and Extra‐Legal Institutions (2004, methodology): “11 An alternative proxy for earnings growth expectations is analysts’ forecast of long-term earning growth (McNichols [2000]).”
Languages and earnings management (2017, neutral): “To control for the potential effect of financial performance (McNichols, 2000; Kothari et al., 2005), we include return on assets (ROA) and an indicator for loss firms (Loss).”
Earnings Management and Executive Compensation: A Case of Overdose of Option and Underdose of Salary? (2002, neutral): “The dollar value of 22 These results are not directly comparable to coefficient estimates found in earlier papers by Dechow, Sloan and Sweeny (1996) or McNichols (2000), since we use the absolute value of discretionary accruals, rather than the signed value used in those studies.”