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Follow the Leader: Cross-Industry Herding in Earnings Management

Global Business and Finance Review, 2014, 19(1), , pp.21-32 [Peer Reviewed Journal]

2014. This work is licensed under https://creativecommons.org/licenses/by-nc/4.0/ (the “License”). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License. ;ISSN: 1088-6931 ;EISSN: 2384-1648 ;DOI: 10.17549/gbfr.2014.19.1.21

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  • Title:
    Follow the Leader: Cross-Industry Herding in Earnings Management
  • Author: Liu, Linxiao ; Williams, Michael R. ; Yin, Jennifer
  • Subjects: accrual strategy ; Earnings management ; 경영학
  • Is Part Of: Global Business and Finance Review, 2014, 19(1), , pp.21-32
  • Description: We employ Vector Autoregressions and quarterly financial statement data to explicitly test for both own- and cross-in- dustry earnings management \"spillovers\". We find that earnings management behavior can transmit from one industry to another, similar industry. Further, we find an indirect, information-based channel whereby earnings management in- formation may reach less-related industries with a lag of about six months. These results provide initial evidence that managers within similar industries \"herd\" in their discretionary accrual strategies. That is, earnings management in one sub-industry classification provides an informative signal to other industries. Others, then, follow suit by adopting like strategies either for competitive parity or purely wealth-maximizing purposes. In addition, we find that earnings manage- ment is persistent and does not mean-revert. Thus, earnings management can have long-term permanent impacts on a firm and its financial statements. This paper presents both methodological and policy implications for the academic ac- counting literature.
  • Publisher: Seoul: People and Global Business Association
  • Language: English
  • Identifier: ISSN: 1088-6931
    EISSN: 2384-1648
    DOI: 10.17549/gbfr.2014.19.1.21
  • Source: Directory of Open Access Journals
    ProQuest Central
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