Browsing by Subject "Earnings management"
Now showing 1 - 2 of 2
Results Per Page
Sort Options
Item Accounting information and analyst forecast errors: a study of the explanatory power of discretionary accruals and accruals quality(Texas Tech University, 2007-05) Riley, Mark; Buchheit, Steve; Westfall, Peter H.; Viator, Ralph E.; Ricketts, Robert C.I investigate links between two commonly employed measures of accounting information, discretionary accruals and accruals quality, and errors in sell-side analysts’ forecasts of firms' quarterly earnings per share. I measure analyst forecast error as the difference between the mean forecast and actual earnings as reported by First Call. I improve upon prior studies' measures of discretionary accruals and accruals quality in two ways. First, the regression equations that I use in estimating both measures use quarterly, rather than annual, financial statement data. I convert the quarterly data to trailing twelve month (four quarter) data in order to run the regressions necessary to estimate discretionary accruals and accruals quality. Second, I use random coefficients regression, rather than ordinary least squares regression, to model accruals in estimating discretionary accruals and to model certain changes in working capital in estimating accruals quality. My use of random coefficients regression allows me to leverage firm-specific and industry-specific information, as well as information about my entire sample of firm quarters. I find that discretionary accruals tend to decrease as the absolute size of analyst forecast error increases. One possible reason for this finding is that firms record income-decreasing accruals as their earnings deviate from analysts' forecasts by large amounts, either positive or negative. I find that analyst forecast errors tend to grow larger, in absolute terms, as accruals quality decreases, suggesting that analysts have a relatively difficult time forecasting firms’ earnings when those firms’ accruals are of relatively low quality. I find that discretionary accruals and accruals quality are both useful in explaining variation in analyst forecast error levels.Item Managing earnings through tax expense : how effective are monitors and governance mechanisms at constraining last-chance earnings management?(2016-05) Powers, Kathleen Marie; Clement, Michael B.; Robinson, John Richard; Jennings, Ross; Seidman, Jeri; Starks, Laura; Mills, LillianPrior literature suggests that market participants struggle to understand changes in firms’ tax expense (Chen and Schoderbek 2000; Plumlee 2003; Weber 2009), making this account attractive for earnings management. Findings in the corporate governance literature suggest that monitors and disciplining governance mechanisms constrain earnings management at firms (Bushee 1998; Edmans 2009; Klein 2002). I join these literatures by examining whether traditionally effective corporate monitors and governance mechanisms also constrain tax expense management. I find little evidence that institutional investors, high quality auditors, or board independence constrain tax expense management, as measured by the change between the Q3 year-to-date GAAP effective tax rate (ETR) and annual ETR. However, consistent with Jensen and Meckling (1976), higher levels of CEO ownership deter tax expense management. These results contribute to our understanding of potential boundaries to monitoring by institutional investors and the effectiveness of disciplining corporate governance mechanisms and advance our understanding of the use of earnings management through tax expense.