Market Response toward Accrual Earnings Management, Real Transactions, and Strategic Revenue Recognition - Earnings Management1

Windy Puspita Dewi, Antonius Herusetya




Abstract


This study investigates how the capital market response to a variety of earnings management tools i.e., accrual-based earnings management, real transaction activities, and strategic revenue recognition. We measure the market response to the information content of earnings by the earnings response coefficient (ERC). By using pooled-OLS regression from 748 firm-years data of public listed companies on the Indonesian Stock Exchange (IDX) in 2004-2009, we find some evidence of a negative association between earnings response coefficients and information content of earnings that contained earnings management. Our study find that real transactions earnings management in operating activities has negative association with earnings response coefficient, but we do not find any evidence from the other earnings management tools. The findings of this study imply that the market participants are able to capture a certain kind of earnings management behaviour that may reduce the earnings response coefficient.


Keywords


Real transaction activities; accrual earnings management; strategic revenue recognition

References


Acock, A. C. (2008). A Gentle Introduction to Stata, 2nd edition, A Stata Press Publication, Stata Corp LP, Texas.

Aiken, L. S. and West, S. G. (1991). Multiple Regression: Testing and Interpreting Interactions. Newbury Park, CA: Sage, dalam Kohler, U., and F. Kreuter. 2009. Data Analysis Using Stata. 2nd Edition. Texas: A Stata Press Publication, Stata Corp LP.

Balsam, S., Krishnan, J., and Yang, J. S. (2003). Auditor Industry Specialization and Earnings Quality. Auditing: A Journal of Practice & Theory, 22(2), 71-97.

Barton, J. and Simko, P. J. (2002). The Balance Sheet as an Earnings Management Constraint. The Accounting Review, 77, 1-27.

Burnett, M. B., Cripe, B. M., Martin, G. W., and Mc Allister, B. P. (2012). Audit Quality and the trade-off between Accretive Stock Repurchases and Accrual-Based Earnings Management. The Accounting Review, 87(6), 1861-1884.

Caylor, M. L. (2010). Strategic Revenue Recognition to Achieve Earnings Benchmarks. Journal of Accounting and Public Policy, 29, 82-95.

Challen, A. E. and Siregar, S. V. (2011). The Effect of Audit Quality on Earnings Management and Firm Value. Working paper.Presented at The 12th Asian Academic Accounting Association, October 8-12, 2011, Bali. Indonesia.

Chi, W., Lisic, L. L. and Pevzner, M. (2011). Is Enhanced Audit Quality Associated With Greater Real Earning Management? Accounting Horizon, 25(2), 315-335.

Cohen, D. A. and Zarowin, P. (2010). Accrual-Based and Real Earning Management Activities around Seasoned Equity Offerings. Journal of Accounting and Economics, doi:10.1016/ j.jacceco.2010.01.002.

Cohen, D. A., Dey, A., and Lys, T. Z. (2008). Real and Accrual Based Earnings Management in the Pre- and Post- Sarbanes Oxley Periods. The Accounting Review, 83(3), 757-787.

Cohen, D. A., Dey, A., and Lys. T. Z. (2005). Trend in Earnings Management and Informativeness of Earnings Announcements in the Pre- and Post-Sarbanes Oxley Periods.Working paper, available at http://www.ssrn.com.

Dechow, P. M. and Schrand, M.C. (2004). Earnings Quality. The Research Foundation for CFA Institute, USA.

DeFond, M. L. and Park, C. W. (2001). The reversal of Abnormal Accruals and the Market Valuation of Earnings Surprises. The Accounting Review, 76(3), 375-404.

Dechow, P. M., Sloan, R.G., and Sweeney, A. P. (1995). Detecting Earnings Management. The Accounting Review, 70(2), 193-225.

Dechow, P. M., Kothari, S. P., and Watts, R. L. (1998). The Relation between Earnings and Cash Flows. Journal of Accounting and Economics 25: 133-168, dalam Roychowdhury, S. 2006. Earnings Management through Real Activities Manipulation.Journal of Accounting and Eco-nomics, 42(3), 335-370.

Elliot, J. A. and Hanna, J. D. (1996). Repeated Accounting Write-Offs and the Information Content of Earnings. Journal of Accounting Research, 34(Supplements), 135-155.

Fields, T. D., Lys, T. Z. and Vincent, L. (2001). Empi-rical Research on Accounting Choice. Journal of Accounting and Economics 31(1-3), 255-307.

Frankel, R. M., Johnson, M. F., and Nelson, K. K. (2002). The Relation between Auditors’s Fee for Non-audit Services and Earnings Management. The Accounting Review, 77, 71-105.

Ghosh, A. and Moon, D. (2005). Auditor Tenure and Perceptions of Audit Quality. The Accounting Review, 80(2), 585-612.

Graham, J. R., Harvey, C. R. and Rajgopal, S. (2005). The Economic Implications of Corporate Financial Reporting. Journal of Accounting and Economics, 40, 3-73.

Gujarati, D. N. (2003). Basic Econometrics. McGraw Hill, 3rd edition.

Gul, F. A., Fung, S. Y. K., and Jaggi, B. (2009). Earning Quality: Some Evidence on The Role of Auditor Tenure and Auditors’s Industry Expertise.Journal of Accounting and Economics, 47, 265-287.

Healy, P. M. and Wahlen, J. M. (1999). A Review of The Earnings Management Literature and Its Implications For Standard Setters. Accounting Horizons, 13(4), 365-383.

Healy, P. (1985). The Effect of Bonus Schemes on Accounting Decisions. Journal of Accounting and Economics, 7, 85-107.

Hermawan, A. (2009). Pengaruh Efektifitas Dewan Komisaris dan Komite Audit, Kepemilikan Oleh Keluarga, dan Peran Monitoring Bank terhadap Kandungan Informasi Laba. Disertasi, Pascasarjana Ilmu Akuntansi, Fakultas Ekonomi Universitas Indonesia.

Herusetya, A. (2012). Analisis Audit Quality Metric Score (AQMS) Sebagai Pengukur Multidimensi Kualitas Audit Terhadap Manajemen Laba dan Kandungan Informasi Laba.Disertasi, Pascasarjana Ilmu Akuntansi, Fakultas Ekonomi Universitas Indonesia.

Hung, M. (2000). Accounting Standards and Value Relevance of Financial Statements: An Inter-national Analysis. Journal of Accounting and Economics, 30(3), 401-420.

Imhoff, E. A. (1992). The Relation between Perceived Accounting Quality and Economic Characteristics of the Firm. Journal of Accounting and Public Policy, 11, 2, 97-118 in Dechow, P. M. and M. C. Schrand. 2004. Earnings Quality. The Research Foundation for CFA Institute, USA.

Jones, J. J. (1991). Earnings Management during Import Relief Investigations. Journal of Accounting Research, 29(2), 193-228.

Kim, O. and Verrecchia, R. (2001).The Relation among Disclosure, Returns, and Trading Volume Information. The Accounting Review, 76, 4, 633-654.

Kothari, S.P., Leone, A. J., and Wasley, C. E. (2005). Performance Matched Discretionary Accrual Measures. Journal of Accounting and Economics, 39, 163-197.

Kothari, S. P. (2001). Capital Market Research in Accounting. Journal of Accounting and Economics 31(1-3), 105-231.

Leuz, C., Nanda, D., and Wysocki (2003). Earnings Management and Investor protection: An International Comparison. Journal of Financial Economics, 69(3), 505-527.

Levitt, A. (1998). The Number Game. A Speech delivered at The NYU Center for Law of Business, New York. Available on http://www.-sec.gov/spch220.txt.

Lin, S., Radhakrishnan, S., and Su, L.,N. (2006). Earnings Management and Guidance for Meeting or Beeting Analysts’ Earnings Forcasts. Working paper. Available on SSRN.com/abstract=928182.

Lin, Z. X. and Shih, M. (2006). Does Market See a Zero or Small Positive Earnings Surprise as a Red Flag? Working paper. Available on SSRN.com/abstract=929943.

Pujilestari, R. dan Herusetya, A. (2013). Pengaruh Kualitas Audit terhadap Manajemen Laba Tran-saksi Real- Pengakuan Pendapatan Strategis. Jurnal Akuntansi dan Keuangan, 15(2), 75-85.

Ratmono, D. (2010). Manajemen Laba Riil dan Berbasis Akrual: Dapatkah Auditor yang Berkualitas Mendeteksinya? Working paper. Disajikan pada SNA XIII, Universitas Jenderal Soedirman, Purwokerto.

Richardson, S. A., Sloan, R. G., Soliman, M. T., and Tuna, A. I. (2003). Information in Accruals about the Quality of Earnings. Working paper, University of Michigan.

Rogers, W.H. (1993). Regression Standard Errors in Clustered Samples. Stata Technical Bulletin 13, 19-23. Reprinted in Stata Technical Bulletin Reprints 3, 88-94.

Roychowdhury, S. (2006). Earnings Management through Real Activities Manipulation. Journal of Acconting and Economics, 42(3), 335-370.

Scott, W. R. (2009). Financial Accounting Theory. 5th edition. Prentice Hall Inc. Canada, Ontario.

Xu, R. Z., Taylor, G.K., and Dugan, M. T. (2007). Review of Real Earnings Management Literature. Journal of Accounting Literature, 26, 195-228.

Zang, A. Y. (2012). Evidence on The Trade off Between Real Activities Manipulation and Accrual-Based Earnings Management. The Accounting Review, 87(2), 675-703.


Full Text: PDF

The Journal is published by The Institute of Research & Community Outreach - Petra Christian University. It available online supported by Directorate General of Higher Education - Ministry of National Education - Republic of Indonesia.

©All right reserved 2016.Jurnal Akuntansi dan Keuangan, ISSN: 1411-0288, e-ISSN: 2338-8137

click tracking
View My Stats




Copyright © Research Center Web-Dev Team