Pengukuran Stubben

THE ACCOUNTING REVIEW
Vol. 85, No. 2 pp. 695–717

American Accounting Association
DOI: 10.2308 / accr.2010.85.2.695

Discretionary Revenues as a Measure of
Earnings Management
Stephen R. Stubben
The University of North Carolina at Chapel Hill
ABSTRACT: This study examines the ability of revenue and accrual models to detect simulated and actual earnings management. The results indicate that revenue models are less biased, better specified, and more powerful than commonly used accrual models. Using a simulation procedure, I find that revenue models are more likely than accrual models to detect a combination of revenue and expense manipulation. Using a sample of firms subject to SEC enforcement actions for a mix of revenue- and expenserelated misstatements, I find that, although revenue models detect manipulation, accrual models do not. These findings provide support for using measures of discretionary revenues to study earnings management.
Keywords: revenues; earnings management; discretionary accruals.
Data Availability: Data are available from public sources.

I. INTRODUCTION his study examines the ability of revenue and accrual models to detect simulated and actual earnings management. Despite repeated criticisms of accrual models over the past 15 years (e.g., Dechow et al. 1995; Bernard and Skinner 1996; Guay et al.
1996; McNichols 2000; Thomas and Zhang 2000; Kothari et al. 2005), many studies have addressed and continue to address earnings management using these models, presumably because few viable alternatives exist.1 Accrual models have been criticized for providing biased and noisy estimates of discretion, which calls into question the conclusions from studies that use them (Bernard and Skinner 1996). The objective of this study is to evaluate a different measure of earnings management—discretionary revenues—that permits more reliable and conclusive inferences than existing models.

T
1

For example, between 2005 and 2008, The Accounting Review, Journal of

References: Barth, M., and S. Kallapur. 1996. The effects of cross-sectional scale differences on regression results in empirical accounting research ———, W. Beaver, J. Hand, and W. Landsman. 2005. Accruals, accounting-based valuation models, and the prediction of equity values Beatty, A., S. Chamberlain, and J. Magliolo. 1995. Managing financial reports of commercial banks: The influence of taxes, regulatory capital and earnings Beaver, W., C. Eger, S. Ryan, and M. Wolfson. 1989. Financial reporting, supplemental disclosures, and bank share prices ———, and E. Engel. 1996. Discretionary behavior with respect to allowances for loan losses and the behavior of security prices ———, and M. McNichols. 1998. The characteristics and valuation of loss reserves of property casualty insurers Beneish, M. 1999. The detection of earnings manipulation. Financial Analysts Journal (Sep/ Oct): 24–36. ———. 2001. Earnings management: A perspective. Managerial Finance 27: 3–17. Bernard, V., and D. Skinner. 1996. What motivates managers’ choice of discretionary accruals? Journal of Accounting and Economics 22: 313–325. Burgstahler, D., and I. Dichev. 1997. Earnings management to avoid earnings decreases and losses. ———, and M. Eames. 2006. Management of earnings and analysts’ forecasts to achieve zero and small positive earnings surprises Callen, J., S. Robb, and D. Segal. 2008. Revenue manipulation and restatements by loss firms. Auditing: A Journal of Practice & Theory 27: 1–29. Caylor, R. 2009. Strategic revenue recognition to achieve earnings benchmarks. Journal of Accounting and Public Policy. Collins, J., D. Shackelford, and J. Wahlen. 1995. Bank differences in the coordination of regulatory capital, earnings and taxes Dechow, P., and R. Sloan. 1991. Executive incentives and the horizon problem: An empirical investigation. Journal of Accounting and Economics 14: 51–89. ———, ———, and A. Sweeney. 1995. Detecting earnings management. The Accounting Review 70: 193–225. ———, ———, and ———. 1996. Causes and consequences of earnings manipulation: An analysis of firms subject to enforcement actions by the SEC ———, S. P. Kothari, and R. Watts. 1998. The relation between earnings and cash flow. Journal of Accounting and Economics 25: 131–168. ———, and I. Dichev. 2002. The quality of accruals and earnings: The role of accrual estimation errors ———, S. Richardson, and I. Tuna. 2003. Why are earnings kinky? An examination of the earnings management explanation ———, and C. Schrand. 2004. Earnings Quality. Charlottesville, VA: The Research Foundation of CFA Institute. DeFond, M., and J. Jiambalvo. 1994. Debt covenant violation and manipulation of accruals. Journal of Accounting and Economics 17: 145–176. Dhaliwal, D., C. Gleason, and L. Mills. 2004. Last change earnings management: Using the tax expense to achieve earnings targets Dopuch, N., R. Mashruwala, C. Seethamraju, and T. Zach. 2005. Accrual determinants, sales changes and their impact on empirical accrual models Fama, E., and J. Macbeth. 1973. Risk, return and equilibrium: empirical tests. The Journal of Political Economy 81: 607–636. Financial Accounting Standards Board. 1987. Statement of Cash Flows. Statement of Financial Accounting Standards No. 95. Norwalk, CT: FASB. Guay, W., S. P. Kothari, and R. Watts. 1996. A market-based evaluation of discretionary accrual models Healy, P. 1985. The effect of bonus schemes on accounting decisions. Journal of Accounting and Economics 7: 85–107. ———, and K. Palepu. 1990. Effectiveness of accounting-based dividend covenants. Journal of Accounting and Economics 12: 97–124. ———, and J. Wahlen. 1999. A review of the earnings management literature and its implications for standard-setting Hribar, P., and D. Collins. 2002. Errors in estimating accruals: Implications for empirical research. Jacob, J., and B. Jorgensen. 2007. Earnings management and accounting income aggregation. Journal of Accounting and Economics 43: 369–390. Jones, J. 1991. Earnings management during import relief investigations. Journal of Accounting Research 29: 193–228. Kang, S., and K. Sivaramakrishnan. 1995. Issues in testing earnings management and an instrumental variable approach Kothari, S. P., A. Leone, and C. Wasley. 2005. Performance matched discretionary accrual measures. Marquardt, C., and C. Wiedman. 2004. How are earnings managed? An examination of specific accruals Matsumoto, D. 2002. Management’s incentives to avoid earnings surprises. The Accounting Review 77: 483–514. McNichols, M., and P. Wilson. 1988. Evidence of earnings management from the provision for bad debts ———. 2000. Research design issues in earnings management studies. Journal of Accounting and Public Policy 19: 313–345. ———. 2002. Discussion of the quality of accruals and earnings: The role of accrual estimation errors Moyer, S. 1990. Capital adequacy ratio regulations and accounting choices in commercial banks. Nelson, K. 2000. Rate regulation, competition and loss reserve discounting by property-casualty insurers. The Accounting Review 75: 115–138. Petersen, M., and R. Rajan. 1997. Trade credit: Theories and evidence. Review of Financial Studies 10: 661–691. Petroni, K. 1992. Optimistic reporting in the property-casualty insurance industry. Journal of Accounting and Economics 15: 485–508. ———, S. Ryan, and J. Wahlen. 2000. Discretionary and non-discretionary revisions of loss reserves by property-casualty insurers: Differential implications for future profitability, risk and market Phillips, J., M. Pincus, and S. Rego. 2003. Earnings management: New evidence based on deferred