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Overvaluation and the Choice of Alternative Earnings Management Mechanisms

The Accounting review, 2011, Vol.86 (5), p.1491-1518 [Peer Reviewed Journal]

2011 American Accounting Association ;Copyright American Accounting Association Sep 2011 ;ISSN: 0001-4826 ;EISSN: 1558-7967 ;DOI: 10.2308/accr-10092 ;CODEN: ACRVAS

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  • Title:
    Overvaluation and the Choice of Alternative Earnings Management Mechanisms
  • Author: Badertscher, Brad A.
  • Subjects: Accounting ; Alternatives ; Business structures ; Coefficients ; Control variables ; Creative accounting ; Earnings management ; Ethical aspects ; Financial management ; GAAP ; Methods ; Proxy reporting ; Proxy statements ; Regression coefficients ; Standards ; Stock prices ; Studies ; Technique ; Valuation ; Variable coefficients
  • Is Part Of: The Accounting review, 2011, Vol.86 (5), p.1491-1518
  • Description: In this study I examine how the degree and duration of overvaluation affect management's use of alternative within-GAAP earnings management, restrictions on further exploitation of within-GAAP accruals management, and subsequent non-GAAP earnings management. Further, I examine how one type of earnings management segues into another type as overvaluation persists. I present evidence that the longer the firm is overvalued, the greater is the amount of total earnings management. I also find that managers engage in accruals management in the early stages of overvaluation before moving to real transactions management, in order to sustain their overvalued equity. Finally, I find that the longer a firm is overvalued, the more likely it is to engage in one of the most egregious forms of earnings management, non-GAAP earnings management. Collectively, the results suggest that the duration of firm overvaluation is an important determinant of managements' choice of alternative earnings management mechanisms.
  • Publisher: Sarasota: American Accounting Association
  • Language: English
  • Identifier: ISSN: 0001-4826
    EISSN: 1558-7967
    DOI: 10.2308/accr-10092
    CODEN: ACRVAS
  • Source: ProQuest Central
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