Real Earnings Management and Long-Term Operating Performance:The Role of Reversals in Discretionary Investment Cuts

• Main Authors: Jia-Rong Jiang, 江嘉蓉
• Other Authors: Hsuan Wang
• Format: Others
• Language: zh-TW
• Published: 2017
• Online Access: http://ndltd.ncl.edu.tw/handle/bn583r

碩士 === 元智大學 === 財務金融暨會計碩士班(會計學程) === 105 === The purpose of this study is to examine whether a reversal of an abnormal cut in discretionary investment is reflective of real earnings management (REM), and the relation between real earnings management and future operating performance. It’s probable that a firm cuts discretionary investment is an optimal strategy for the change of economic, so it’s not doing real earnings management. If a firmengages in REM by cutting discretionary investments, it willrevert back for maintained competitiveness during the next period. I hypothesize that an abnormal cut in discretionary investments that reverses within one year after it is undertaken is predictive of the degree to which the cut reflects REM. This study uses a research framework provided by Vorst (2015) to examine whether firms engage in REM by reversing cut in Research and Development (R&D), Selling, General, and Administrative expenses (SG&A) and Capital expenditure (CAPEX). The empirical results show that the degree of reversing cut in discretionary investment reflects REM. The economic costs and benefits of engaging in REM will affect future performance. As a result, I hypothesize that firms will have different future performance between firms with reversing cuts and non-reversing cuts.The empirical results show that non-reversing cut areassociated with better future operating performance, but reversing cuts don’t has this tendency.