Earnings Management Using Asset Sales: An International Study of Countries Allowing Noncurrent Asset Revaluation

Ervin L. Black · Keith Sellers · Tracy S. Manly

118 citations0/0 files storedJournal of Business Finance &amp Accounting

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Auditing, Earnings Management, Governance Corporate Finance and Governance Accounting Theory and Financial Reporting

Abstract

Bartov (1993) demonstrates that US firms time asset sales to smooth income and affect debt/equity relationships. This study examines earnings management behavior through asset sales in countries that allow asset revaluation: Australia/New Zealand (ANZ) and the United Kingdom (UK). Earnings management behavior differs across these two country groups when their accounting rules differed prior to 1993, but is similar during the 1993–95 period when the UK implemented FRS 3. The results also find that revaluer companies do not use asset sales to smooth income in ANZ nor in the UK after FRS 3 was implemented in 1993. UK revaluers (prior to FRS 3) and both countries’ non‐revaluers sell assets consistent with income smoothing.

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