Real and Accrual-based earnings management: Impact of equity compensation and market pricing

• Main Authors: Shiuan-ChengChen, 陳軒晟
• Other Authors: Ming-Yuan Leon Li
• Format: Others
• Language: en_US
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/b4chfg

碩士 === 國立成功大學 === 財務金融研究所 === 102 === The research examines the association between equity compensation and earnings management and the relation between earnings management and market pricing. We divide earnings management into accrual-based earnings management and real earnings management. Because our sample consists of cross-sectional and time-series data, we use a panel regression model to analyze it. After investigating the association between equity compensation and earnings management, we further examine the relation between earnings management and market pricing. Our sample consists of 1,089 U.S. non-financial firms and 6,097 firm-year observations from 2005 to 2012. The empirical results show that there is a positive relation between equity compensation and earnings management, including both accrual-based earnings management and real earnings management. In other words, this means when managers are given a high proportion of equity compensation, they tend to use either accrual-based earnings management or real earnings management to increase their additional compensation. We further examine the relation between earnings management and annual stock return. The results show accrual-based earnings management to be negatively related to the annual stock return. However, real earnings management is positively related to annual stock return. These results show that there are different market reactions when managers use different types of earnings management.