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Does Earnings Management Affect Firms' Investment Decisions?

The Accounting review, 2008-11, Vol.83 (6), p.1571-1603 [Peer Reviewed Journal]

Copyright 2008 American Accounting Association ;Copyright American Accounting Association Nov 2008 ;ISSN: 0001-4826 ;EISSN: 1558-7967 ;DOI: 10.2308/accr.2008.83.6.1571 ;CODEN: ACRVAS

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Title:
Does Earnings Management Affect Firms' Investment Decisions?
Author: McNichols, Maureen F. ; Stubben, Stephen R.
Subjects: Accounting irregularities ; Accounting research ; Business investment ; Capital investments ; Cash flow ; Corporate finance ; Creative accounting ; Decision making ; Earnings ; Earnings management ; Financial accounting ; Financial investments ; Financial services industries ; Fixed assets ; Investment decision ; Investment decisions ; Investment management companies ; Investment policy ; Investment strategies ; Litigation ; Statistical median ; Studies ; U.S.A
Is Part Of: The Accounting review, 2008-11, Vol.83 (6), p.1571-1603
Description: This paper examines whether firms manipulating their reported financial results make suboptimal investment decisions. We examine fixed asset investments for a large sample of public companies during the 1978-2002 period and document that firms that manipulate their earnings-firms investigated by the SEC for accounting irregularities, firms sued by their shareholders for improper accounting, and firms that restated financial statements-over-invest substantially during the misreporting period. Furthermore, following the misreporting period, these firms no longer over-invest, consistent with corrected information leading to more efficient investment levels. We find similar patterns for firms with high discretionary revenues or accruals. Our findings suggest that earnings management, which is largely viewed as targeting parties external to the firm, can also influence internal decisions.
Publisher: Sarasota: American Accounting Association
Language: English
Identifier: ISSN: 0001-4826
EISSN: 1558-7967
DOI: 10.2308/accr.2008.83.6.1571
CODEN: ACRVAS
Source: ProQuest Central

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Does Earnings Management Affect Firms' Investment Decisions?

Copyright 2008 American Accounting Association ;Copyright American Accounting Association Nov 2008 ;ISSN: 0001-4826 ;EISSN: 1558-7967 ;DOI: 10.2308/accr.2008.83.6.1571 ;CODEN: ACRVAS

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