Predicting Earnings Management: The Case of Earnings Restatements

  title={Predicting Earnings Management: The Case of Earnings Restatements},
  author={Scott Richardson and A. Irem Tuna and Min Wu},
This paper examines the usefulness of accounting information in predicting earnings management. We investigate a comprehensive sample of firms from 1971-2000 that restated annual earnings. We find that firms restating earnings have high market expectations for future earnings growth and have higher levels of outstanding debt. We also find that a primary motivation for the earnings manipulation is the desire to attract external financing at a lower cost. Furthermore, our evidence suggests that… 

Figures and Tables from this paper

Performance, Growth and Earnings Management

We study the relationship between the amount of managed earnings and firms’ earnings performance and expected growth in a reporting model, where managers manipulate earnings to influence the

Tax Implications of Earnings Management Activities: Evidence from Restatements

This study examines the tax implications of pretax earnings management. Prior research has examined pretax earnings management activities that have current income tax consequences (book-tax

Do Executive Stock Options Generate Incentives for Earnings Management ? Evidence from Accounting

In a sample of 224 firms that announced restating their financial statements from January 1997 to June 2002 due to accounting irregularities and a control group of all non-restating firms with data


This aim of the current study is to investigate the impact of earnings management incentives on earnings response coefficients of companies. In this regard, incentives for signing debt contracts and

Earnings Revisions in SEC Filings from Prior Preliminary Earnings Announcements Dana Hollie** Assistant Professor of Accounting

This paper investigates earnings revisions that occur between preliminary earnings announcements and the immediate subsequent SEC filings. On average, the absolute value of the revision is 2.9% of

An Empirical Analysis of Earnings Management in Australia

This is a comprehensive large-sample study of Australian earnings management. Using a sample of 4,844 firm-year observations across nine Australia industries from 2000 to 2006, we find substantial

Institutional Investors and Accounting Restatements

This paper investigates the role that institutional investors play in the market reaction to accounting restatements. We show that transient institutional investors, defined as institutions with

The Reputational Penalty for Aggressive Accounting: Earnings Restatements and Management Turnover

In this paper we investigate the reputational penalties to managers of firms announcing earnings restatements. More specifically, we examine management turnover and the subsequent employment of

A study on the effect of earnings management on restatement and the changes on information content of earnings following restatements: Evidence from Tehran Stock Exchange

The current impressive increase in the number of the restatements, encourage many researchers to find the causes of restatements including earnings management. Moreover, restatements increase the

The Effect of Accounting Restatements on Earnings Revisions and the Estimated Cost of Capital

This paper examines the effect of accounting restatements on a firm's cost of equity capital. We show that, on average, accounting restatements lead to both decreases in expected future earnings and



Earnings Momentum and Earnings Management

This paper provides evidence on firms that report long “strings” of consecutive increases in earnings per share (EPS). First, we find 746 firms that report earnings strings of at least twenty

Earnings Restatements: A Capital Market Perspective

I investigate the stock-return behavior around earnings restatement announcements, the quantitative information and qualitative characteristics of restatements contributing to the short-term abnormal

Earnings Management to Exceed Thresholds

Investors are keenly interested in financial reports of earnings because earnings provide important information for investment decisions. Thus, executives who are monitored by investors and directors

Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*

This study investigates firms subject to accounting enforcement actions by the Securities and Exchange Commission (SEC) for alleged violations of GAAP. We investigate: (i) the extent to which the

Determinants of Market Reactions to Restatement Announcements

We examine the market reaction to a sample of 403 restatement announcements made from 1995 to 1999. We find significantly negative average abnormal returns of about 9 percent over a two-day

Earnings Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators

The fact that accounting academics often have very different perceptions of earnings management than practitioners and regulators is addressed, and it is argued that each of these groups may benefit from some rethinking of their views about earnings management.

Is Meeting the Consensus Eps Good News or Bad News? Stock Splits and the Accuracy of Analysts' Forecast Data

Both academic and practicing accountants use forecasts made by security analysts to estimate market expectations about forthcoming earnings announcements. We report empirical analysis to illustrate

Inventory Changes and Future Returns

We find that the negative relation between accruals and future abnormal returns documented by Sloan (1996) is due mainly to inventory changes. We propose three explanations for this result, derived

Institutional Investors and Equity Prices

This paper analyzes institutional investors' demand for stock characteristics and the implications of this demand for stock prices and returns. We find that "large" institutional investors nearly