财务会计理论(司可脱)PPT文件11_scott_im_ch11.pptVIP

Chapter 11 Earnings Management Earnings Management (EM) Definition Choice of accounting policies to achieve some specific manager objective Can Also Include Management of Real Variables RD, advertising, maintenance Timing of disposals Earnings Management Techniques Revenue Recognition Accounting Policy Change Timing of Adoption of New Standards Writeoffs, Asset Sales, Provisions Accruals (Discretionary) Direct Charges to Retained Earnings Patterns of EM Bath Income Minimization Income Maximization Income Smooth Reasons For EM Financial Reporting To meet investors’ earnings expectations To credibly communicate inside information about earnings expectations (“Good EM”) Contractual Bonus [Healy (1985)] Debt covenant [Sweeney (1994)] Political [Jones (1991)] IPOs Review of Arguments for “Good” EM Securities Labour Market Argument Manager “foolish” to report higher earnings than can be maintained Why? accruals reverse Manager is best placed to know persistent earnings (inside information) Blocked communication EM is credible way to release blocked, inside information Review of Arguments for “Good” EM, Cont’d. Contracting Argument To give firm some flexibility in the face of rigid, incomplete contracts Concept of an incomplete contract Contract rigidity Contract violation is costly “Bad” EM Financial Reporting Perspective Hanna, (1999) Investors and analysts look to core earnings, ignoring extraordinary and non-recurring items Implies manager not penalized for non-core charges, such as writedowns, provisions for restructuring But current non-core charges increase core earnings in future years, through lower amortization and absorption of future costs “Bad” EM, Cont’d. Hanna, cont’d. As a result, managers tempted to “overdose” on non-core charges, thereby putting earnings “in the bank” (also called cookie jar accounting) Note securities market reaction Hanna found evidence that market uses frequency of such charges as proxy for their misuse--lower ERC when grea