Earnings management and accrual anomaly across market states and business cycles

Ze-To, S. 2012. Earnings management and accrual anomaly across market states and business cycles. Advances in Accounting. 28 (2), pp. 344-352. https://doi.org/10.1016/j.adiac.2012.09.011

TitleEarnings management and accrual anomaly across market states and business cycles
TypeJournal article
AuthorsZe-To, S.
Abstract

This paper examines if the conditioning on market states is important to earnings management behaviors and profitability of accrual hedge strategy. This paper discusses four findings. First, accrual profits are consistently positive across both market states and significantly higher in DOWN markets. Second, while earnings management exists in both market states, the management effort is less effective and short-lived in the DOWN state. Third, this paper finds that the accrual effect exists but varies across industries. Finally, this paper examines how business cycles associate with accrual anomaly and show that accruals mispricing cannot be fully captured by macroeconomic model predicted returns.

KeywordsEarnings management, Market state, Accrual anomaly
JournalAdvances in Accounting
Journal citation28 (2), pp. 344-352
ISSN0882-6110
2590-1699
Year2012
PublisherElsevier
Digital Object Identifier (DOI)https://doi.org/10.1016/j.adiac.2012.09.011
Publication dates
PublishedDec 2012

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