Real and accrual based earnings management in

The IPO event is associated with higher levels of information asymmetry and agency conflicts between insiders and outsiders that are found to provide managers with strong incentives and more flexibility to engage in earnings management activities to maximise their wealth instead of shareholders.

Real and accrual based earnings management in

Download Kb Preview Abstract This thesis builds on information asymmetry, agency conflicts and litigation-risk backgrounds to examine real and accrual earnings management activities around Initial Public Offerings IPOsmitigating factors regulators and auditorsand consequences for future performance stock return and IPO survivability.

Real and accrual based earnings management in

The IPO event is associated with higher levels of information asymmetry and agency conflicts between insiders and outsiders that are found to provide managers with strong incentives and more flexibility to engage in earnings management activities to maximise their wealth instead of shareholders.

The first empirical study chapter five of this thesis examines whether different regulatory environments impact the use of real and accrual earnings management around IPOs via an analysis of the heavily regulated Main market of the London Stock Exchange and the more lightly regulated Alternative Investment Market AIMand whether these different regulatory burdens restrictive vs.

Accrual-based and real earnings management and political connections

The results of this study show that IPO firms in the UK manage earnings upward utilizing both real and accrual earnings management around IPOs, and that IPO firms on the lightly regulated AIM market exhibit higher levels of sales-based and accrual-based and a lower level of discretionary expenses-based earnings management than IPO firms on the heavily regulated Main market.

Further, the results show that real and accrual earnings management, which take place during the IPO year, have severe negative consequences for post-IPO stock return performance, and that the heavily regulated Main market of the London Stock Exchange has better mechanisms-capabilities to correct stock prices that were inflated by earnings management during the IPO year than the lighter regulated AIM market.

The results show that high quality auditors mitigate real earnings management activities that occur through discretionary expenses-based manipulation during the IPO year, and that IPO firms audited by high quality auditors big N audit firms undertake a higher level of sales-based manipulation to avoid the monitoring of discretionary expenses-based and accrual-based manipulations.

Real and accrual based earnings management in

Further, IPO firms audited by high quality auditors are found to experience a severe decline in post-IPO stock return performance due to the extensive use of sales-based manipulation at the IPO year. Thus, this evidence confirms that high quality auditors impact the relationship between real and accrual earnings management and post-IPO stock return performance.

Accrual-based and real earnings management activities around seasoned equity offerings

Finally, the third empirical study chapter seven explores whether real and accrual earnings management that occur during the IPO year are associated with post-IPO failure and survivability in the subsequent periods.

The results show that IPO firms with high levels of real and accrual earnings management during the IPO year have a higher probability of failure in the subsequent period.

In summary, the main findings of this thesis suggest that real and accrual earnings management activities are utilized by IPO firms, that the level of utilizing these activities is dependent on the regulatory environment and audit quality, and that these activities are negatively associated with future stock performance and post-IPO survivorship.

Regulators and audit firms should consider the fact that managers switch between real and accrual earnings management to avoid external monitoring. Further, the greater restriction on discretionary expenses-based and accrual-based manipulation seems to lead managers to engage extensively in sales-based manipulation.Firms can manage earnings using two primary methods: accrual-based earnings management (AEM), such as using “cookie jar” reserves, and real activities-based earnings management (REM), such as the opportunistic timing of discretionary expenses.

Volume 25, Issue No. 1 & 2, February and April 2018

Oct 30,  · Conversely, the level of real earnings management activities declined prior to SOX and increased significantly after the passage of SOX, suggesting that firms switched from accrual-based to real earnings management methods after the passage of SOX.

1 Accrual and Real-based Earnings Management by UK Acquirers: Evidence from Pre- and Post-Higgs Periods Abstract Purpose: This study investigates the occurrence of pre-merger earnings management for a sample of stock- and cash-financed UK acquirers between and This paper theoretically and empirically investigates the role of CEO career concerns on accruals based and real activities earnings management.

We develop a model of earnings management, rooted in career concerns, that alternatively incorporates the features of the accrual . provide an overview of accrual based earnings management, real transactions based earnings management and expectations management, and highlight the interrelationships between these three phenomena.

Additionally, the article will discuss how public policies such as Regulation FD and the Sarbanes-Oxley Act affect managers’ use of each of.

accrual-based earnings management because accrual manipulation was more likely to be scrutinized by external auditors and regulatory bodies while real activities manipulation had .

CiteSeerX — Accrual-based and real earnings management activities around seasoned equity offerings