| Summary: | 碩士 === 國立臺北大學 === 會計學系 === 95 === This paper provides evidence consistent with the overvaluation hypothesis (Jensen 2004). Under the overvaluation hypothesis, overvaluation equity provides a strong incentive for managers to present higher earnings that maintain the overvaluation. We categorize firms as overvalued if they are in the top quintile based on beginning of year price-earnings ratios or abnormal return. Using annual data from 1996 to 2005, we find that overvalued firms have higher discretionary accruals after they classified as overvalued firms one year. Moreover, we find that the negative association between discretionary accruals and operating cash flows is more pronounced for overvalued firms. In addition, we also test whether the operating cash performance incentive are more pronounced for overvalued firms or are less pronounced for Big N auditors. However, findings are only supported our arguments partially.
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