Influence Of Manager's Abilities On The Relation Between Real Earning Management And Future Firm Performance

Document Type : Research Paper

Abstract

The purpose of this study is to examine the influence of the manager's abilities as a moderating variable on the relation between real earnings management and the future firm performance among 107 listed companies in Tehran Stock Exchange (TSE) from 7 different industries for the period of 2006-2011. For measuring the real earnings management, the Roychowdhury (2006) model, which includes abnormal operating cash flow, abnormal discretionary expenses, and abnormal production costs, is used. The manager's abilities index is measured by Demerjian et al. (2012) model, using Data Envelope Analysis (DEA). The results show that there is a negative relation between real earnings management and the future firm performance; and the manager's abilities do not decrease this negative relationship.

Keywords

References

Berk, J. & Stanton, R. (2007). Managerial ability, compensation, and the closed-end fund discount. The Journal of Finance, 62 (2): 529-556.
Cohen, D. & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity offerings. Journal of Accounting and Economics, 50(1): 2-19.
Dechow, P., Sloan, R. & Sweeney, A. (1995). Detecting earnings management. The Accounting Review, 70 (2): 193-225.
Demerjian, P., Lev, B. & McVay, S. (2012). Quantifying managerial ability: A new measure and validity tests. Management Science, 58(7): 1229-1248.
Demerjian, P., Lewis, M., Lev, B. & McVay, S. (2012). Managerial ability and earnings quality. Working Paper. Emory University.
Fakhari, H. & Adeeli, M. (2012). Relation between free cash flow and real earning management in the Tehran Stock Exchange. The Iranian Accounting and Auditing Review, 19(4): 63-78. (in Persian)
Gorbani, S., Javan, A. & Nazemi Ardakani, M. (2011). Influence of real earning management on the future operating cash flow. Experimental studies of Financial Accounting, 1: 133-149. (in Persian)
Gunny, K. (2010). The relation between earnings management using real activities manipulation and future performance: Evidence from meeting earnings benchmarks. Contemporary Accounting Research, 27 (3): 855-888.
Hambrick, D. & Mason, P. (1984). Upper Echelons: The organization as a reflection of its top managers. The Academy of Management Review, 9 (2): 193-206.
Healy, P. & Wahlen, J. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons,13 (4): 365-383.
Huang, X. (2013). Managerial ability and real earnings management. Unpublished Doctoral Dissertation, Oklahoma University.
Leggett, D., Parsons, L. & Reitenga, A. (2009). Real Earnings Management and Subsequent Operating Performance. Working paper. Available in:  http:// ssrn.com/abstract=1466411. 
Moradzadeh, M. & Adeeli, M. (2012). On The Relation between Real Activities Manipulation and Cost of Equity Capital. Quarterly Journal of Securities Exchange, 2(7): 36-54. (in Persian)
Rahmani, A. & Ramsheh, M. (2014). Trade-off between Accrual-based Earnings Management and Real Activities Manipulation. The Iranian Accounting and Auditing Review, 20(4): 39-60. (in Persian)
Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42(3): 335-370.
Saeedi, A., Hamidian, N. & Rabiee, H. (2013). Relation between real earning management activities and future firm performance in Tehran Stock Exchange. Quarterly Journal of Managerial Accounting, 6(2): 45-58.
(in Persian)
Accounting and Auditing Review
Volume 23, Issue 2
2016
Pages 253-267

Files

Share

How to cite

Statistics