The Partial Substitution Effect of the Two Types of Earnings Management
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| Title | The Partial Substitution Effect of the Two Types of Earnings Management
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| Author | Gong Qihui,Wu Liansheng and Wang Yaping |
| Organization | School of Management,ZheJiang University;Guanghua School of Management,Peking University |
| Email | gongqihui@126.com；wuls@gsm.pku.edu.cn；ywang@gsm.pku.edu.cn |
| Key Words | Earnings management; Accounting standards; Long-lived assets impairment |
| Abstract | We document the substitution effect between the accrual-based earnings management (AEM) and real transaction-based earnings management (REM). We propose an equilibrium model that if the cost of one type of earnings management (EM) increases, the magnitude of this type of EM will decrease and that of the other type will increase, while the total EM will decrease. However, if the cost of one type of EM decreases, the magnitude of this type of EM will increase and that of the other type will decrease, while the total EM will increase. Empirical analysis provides evidence of the partial substitution effect of AEM to REM. We find that after the termination of long-lived assets impairment reversals in 2007, firms with an upward earnings management motivation decreased the probability and the amount of long-lived assets impairment reversal, whereas increased the probability and the amount of the gain of long-lived assets sales, but the total EM decreased. |
| Serial Number | WP790 |
| Time | 2014-12-30 |
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