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CENTRE FOR ENGLISH LANGUAGE AND FOUNDATION STUDIES Pre-sessional EAP Programme 2013
RESEARCH WRITING Final Draft Cover Page
STUDENT NUMBER STUDENT NAME
TUTOR NAME
TITLE
WORD COUNT
I confirm that the material in this assignment is my own work and has not been submitted for any other course of study. I further declare that all source material used in its preparation has been acknowledged appropriately.
I also confirm that I have kept a copy of this assignment and I give permission for my work to be used for future academic purposes.
SIGNED:…………………………………………………………………………. DATE:………………………………………
Abstract
Engaging real earnings management in listed firms was considered to be detrimental to subsequent performance of firms and audit quality in previous research. This paper argues that despite the negative effects, real earnings management can be beneficial for listed firms. On the one hand, from the perspective of Signaling Theory and Agency Theory, future performance of listed firms benefits from engaging REM. On the other hand, REM is also positively associated with audit quality. This paper presents empirical evidence from recent research to support this argument; in addition, suggestions are made for keeping the extent of REM at a reasonable level in order to make the most of REM.
1.Introduction
Owing to the scandals of listed firms such as Enron, the Sabanes-Oxley Act was introduced to keep the accuracy of the accounting system. In order to deal with the strict scrutiny, managers began to replace traditional accrual earnings management (AEM) with real earnings management (REM), which is becoming increasingly important in business practices.
Research on REM, also known as ‘earning management’ through real activities manipulation, started rather late compare to that on AEM. REM was firstly presented by Schipper (1989), aiming to alter financial earnings or
RESEARCH WRITING Final Draft Cover Page
STUDENT NUMBER STUDENT NAME
TUTOR NAME
TITLE
WORD COUNT
I confirm that the material in this assignment is my own work and has not been submitted for any other course of study. I further declare that all source material used in its preparation has been acknowledged appropriately.
I also confirm that I have kept a copy of this assignment and I give permission for my work to be used for future academic purposes.
SIGNED:…………………………………………………………………………. DATE:………………………………………
Abstract
Engaging real earnings management in listed firms was considered to be detrimental to subsequent performance of firms and audit quality in previous research. This paper argues that despite the negative effects, real earnings management can be beneficial for listed firms. On the one hand, from the perspective of Signaling Theory and Agency Theory, future performance of listed firms benefits from engaging REM. On the other hand, REM is also positively associated with audit quality. This paper presents empirical evidence from recent research to support this argument; in addition, suggestions are made for keeping the extent of REM at a reasonable level in order to make the most of REM.
1.Introduction
Owing to the scandals of listed firms such as Enron, the Sabanes-Oxley Act was introduced to keep the accuracy of the accounting system. In order to deal with the strict scrutiny, managers began to replace traditional accrual earnings management (AEM) with real earnings management (REM), which is becoming increasingly important in business practices.
Research on REM, also known as ‘earning management’ through real activities manipulation, started rather late compare to that on AEM. REM was firstly presented by Schipper (1989), aiming to alter financial earnings or
References: Roychowdhury, S. (2006). Earning management through real activities manipulation. Journal of Accounting and Economics, 42, 335-370. doi:10.1016/j.jacceco.2006.01.002 Graham, J Zang, A. Y. (2012). Evidence on the Trade-Off between Real Activities Manipulation and Accrual-Based Earnings Management. The Accounting Review, 87, 675-703. doi:10.2308/accr-10196 Chi, W., Lisic, L Jiraporn, P., Miller, G. A., Yoon, S. S., & Kim, Y. S. (2008). Is earnings management opportunistic or beneficial? An agency theory perspective. International Review of Financial Analysis, 17, 622-634. doi: 10.1016/j.irfa.2006.10.005 Gunny, K Bartov, E., Givoly, D., & Hayn, C. (2002). The rewards to meeting or beating earnings expectations. Journal of Accounting and Economics, 33, 173-204. doi:10.1016/S0165-4101(02)00045-9 Wright, P., Ferris, S Bebchuk, L. A., & Fried J. M. (2003). Executive Compensation as an Agency Problem. The Journal of Economic Perspective, 17, 71-92. Retrieved from http://escholarship.ucop.edu/uc/item/4fc8q4f8 Jensen, M Taylor, G. K., & Xu, R. Z. (2010). Consequences of real earnings management on subsequent operating performance. Research in Accounting Regulation, 22, 128-132. doi:10.1016/j.racreg.2010.07.008