Article2009

Earnings management practices among growth and value firms

Pawan Madhogarhia · Ninon K. Sutton · Theodor Kohers

43 citations0/0 files storedApplied Financial Economics

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Auditing, Earnings Management, Governance Accounting and Organizational Management Corporate Governance and Financial Management

Abstract

This research examines the earnings management practices of growth versus value firms. We predict that growth firms have more incentive to ‘manage their earnings’ and that they do so more aggressively as compared to value firms. The primary reason for this behaviour is that information asymmetries are more severe for growth firms. Using a sample of firms over the period from 1997 through 2001, this study finds that growth firms tend to manage their earnings upward and downward more aggressively than value firms. These results are robust to using different components of discretionary total accruals as a measure for earnings management and after controlling for other factors.

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References

1992The Cross-Section of Expected Stock Returns 1991Earnings Management During Import Relief Investigations 1985Positive Accounting Theory 1994Contrarian Investment, Extrapolation, and Risk 1997Earnings management to avoid earnings decreases and losses 1991Disclosure, Liquidity, and the Cost of Capital 2012Detecting Earnings Management 1995Size and Book-to-Market Factors in Earnings and Returns

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