Tài liệu hạn chế xem trước, để xem đầy đủ mời bạn chọn Tải xuống
1
/ 270 trang
THÔNG TIN TÀI LIỆU
Thông tin cơ bản
Định dạng
Số trang
270
Dung lượng
20,19 MB
Nội dung
Marinakis, Pantelis (2011) An investigation of earnings management and earnings manipulation in the UK PhD thesis, University of Nottingham Access from the University of Nottingham repository: http://eprints.nottingham.ac.uk/12874/1/555391.pdf Copyright and reuse: The Nottingham ePrints service makes this work by researchers of the University of Nottingham available open access under the following conditions This article is made available under the University of Nottingham End User licence and may be reused according to the conditions of the licence For more details see: http://eprints.nottingham.ac.uk/end_user_agreement.pdf For more information, please contact eprints@nottingham.ac.uk AN INVESTIGATION OF EARNINGS MANAGEMENT AND EARNINGS MANIPULATION IN THE UK Pantelis Marinakis, Msc Thesis submitted to the University of Nottingham Doctor of Philosophy April 2011 for the degree of Abstract What causes managers to manipulate their financial statements? How best can shareholders or prospective investors, auditors, financial analysts and regulators detect earnings manipulations? Addressing these questions is of critical importance to the functioning efficient of capital markets For an investor it can result to improved returns, for an auditor it can mean avoiding costly litigation, for an analyst it can mean avoiding a damaged reputation, and for a regulator it can lead to enhanced investor fewer investment disasters The objective of this thesis is two-fold The and protection first objective is to investigate the frequency and the magnitude of earnings management Second, is to provide an analysis of the characteristics of companies discovered to manipulate earnings and the determinants of these manipulations Exploratory interviews with the Financial Reporting Review Panel suggest that earnings manipulation usually results from escalating earnings managementthat after a certain stage violates accounting principles This is analysed in a review of a series of companiespublicly criticised for applying aggressiveaccounting practises.It is suggested that these cases involve specific accounting standards that require increasedjudgement from management In order to gain a broader view of the extent that companies manage earnings, this thesis examines the distribution of earnings among thresholds such as zero low decreases documents This and earnings thesis evidence of unusually earnings frequencies of small decreases in earnings and small losses and unusually high frequencies of small increases in earnings and small positive earnings Additional evidence suggests that three components of earnings, cash flow from operations, changes in working capital and discretionary accruals, are used to achieve increases in earnings Finally, manipulate this thesis presents evidence of the characteristics of firms that earnings and proposes a model for detecting earnings manipulation Companies found to manipulate lower have to accrual quality, earnings appear declining performance, weaker corporate governance structure, weaker balance sheet logistic leverage increased is investigation The scaled a and probability output of this model for discriminating accounting manipulations, where higher values suggest a greater probability of manipulation I Blank Page Acknowledgements I would like to thank my supervisors Professor John Hasseldine and Professor Bob Berry for their guidance and support during my studies Above all, I am indebted to my family for their support and motivation List of Tables 4.1 Financial Reporting Review Panel's Objectives 62 6.1 Descriptive statistics by year for scaled values of change in earnings and earnings levels 6.2 Descriptive statistics for the data sample 6.3 Distribution of adjacent to zero earnings and non-discretionary 134 135 earnings relative to 154 targets 6.4 Proportion of observations missing an earnings threshold before and after 158 discretionary accruals 6.5 Transition matrices indicating the frequency of movement of observations from classesof non-discretionary earningsto classesof earningsrelative 159 to target 7.1 Cases referred to the Panel and subsequent action taken by the FRRP in relation to 180 the financial reports with financial year-end beginning or after 1994 7.2 Size, time and industry characteristics for a sample of 98 cases subject to adverse ruling by the FRRP 7.3 Company financial characteristics, measured at beginning 182 of defect year Comparison between `manipulators' and 'controls' 7.4 Type and effect of accounting violation in the sample of 98 violators 183 185 7.5 Financial performance of FRRP and control sample companies from one year defect the to year one year after prior 7.6 Corporate governance characteristics for companies in FRRP and control 188 samples 7.7 Variables' Definitions 7.8 Financial characteristics and ratio analysis for FRRP and control samples 191 199 200 7.9 Comparison between FRRP companies and controls applying logistic regression models 8.1 Comparing characteristics between the two sub-samples of manipulators 8.2 Distribution 211 in for the estimation sample controls and manipulators of variables (years: 1994-2003) 8.3 WESML 201 215 for Beneish's (1999) model, results and unweighted probit estimation based on estimation sample of 132 Manipulators and 2,636 controls 219 8.4 Sensitivity analysis to the choice of estimation and holdout samples Descriptive for 2,363 based 132 100 and manipulators estimation of statistics on random samples 222 controls 8.5 Cut-off probabilities and probability of Type I and Type II errors for various 225 levels of relative costs in the estimation 8.6 WESML and unweighted probit estimation results based on an Estimation Sample 230 of 132 manipulators and 2,636 controls 8.7 Sensitivity Analysis to the choice of Estimation and Holdout Samples Descriptive Statistics for Estimation Based on 100 Random Samples of 132 Manipulators and 2,363 Controls 222 8.8 Cut-off probabilities and Probability of Type I and Type II Errors for Various Levels of Relative Costs in the Estimation Sample and in the Holdout Sample 235 List of Figures 2.1 The three conditions generally present when fraud occurs 2.2 The distinction between earnings management and earnings manipulation 23 27 2.3 Earnings management - earnings manipulation and potential wealth transfers 30 55 3.1 Summary of the thesis 90 5.1 Extract from Isoft's Annual Report 95 5.2 Share Price of Northgate plc 111 5.3 Extract from the accounts of Grainger 6.1 Empirical distribution of changes in earnings after tax scaled by market 137 value 6.2 Three empirical distributions of changes in earnings categorised according to the 139 firm for the pattern of proceeding earnings 6.3 The distribution of earnings after tax scaled by beginning of the year market 142 value 6.4 Three empirical distributions of earnings scaled by market value categorised for firm the to the according pattern of proceeding earnings 6.5 Conditional distributions of earnings against current assets' percentiles 6.6 Conditional distributions of earnings against current liabilities' 143 146 percentiles 147 6.7 Conditional distributions of earnings against operating cashflows' percentiles 148 6.8 Conditional distributions of earnings against percentiles of previous year's cash flow from operations 6.9 Conditional distributions of earnings against discretionary accruals 6.10 Conditional distributions of earnings against non-discretionary 150 151 accruals 152 163 6.11 Interquartile distributions of earnings scaled by market value 6.12 Characteristics of the observations with small positive earnings and small earnings increases 6.13 Robustness test using scaling by sales to investigate the distribution changes and earnings levels 6.14 Robustness test using scaling by assets to investigate the distribution changes and earnings levels 164 of earnings 165 of earnings 166 7.1 Median level and change in reported earnings, scaled by beginning of year equity, for the FRRP and control samples Separate plots are presented using the Profit after tax, before and after the violation (restated figures in year and published in years -1, 187 +1, +2, +3) for the FRRP sample 8.1 The Classification Performance of the Unweighted Probit Model for Different Relative Error Cost Assumptions (Estimate Sample) 8.2 The Classification Performance of the Unweighted Probit Model for Different Relative Error Cost Assumptions (Holdout Sample) 8.3 The Classification 226 212 Performance of the improved Unweighetd Probit Model for Different Relative Error Cost Assumptions (Estimation Sample) 236 Different Relative Error Cost Assumptions (Holdout Sample) 222 8.4 The Classification Performance of the improved Uncweighted Probit Model for Beneish, M D., Billings, M B., & Hodder, L D 2008, "Internal Control Weaknesses 665-703 3, 83, Review, Uncertainty", Information Accounting pp no vol and Beasley M S 1996,"An Empirical Analysis of the Relation betweenthe Board of Director Composition and Financial Statement Fraud", TheAccounting Review, vol 71, no 4, pp 443-465 Bens, D A., Nagar, V., Skinner, D J., & Wong, M 11.F 2003, "Employee stock Accounting Journal and EPS of dilution, options, and stock repurchases", Economics,vol 36, no 1-3, pp 51-90 Benston,G J & Hartgraves,A L 2002, "Enron: what happenedand what we can 1052, 21, pp Policy, no vol learn from it", Journal ofAccounting and Public 127 Bergstresser,D & Philippon, T 2006, "CEO incentives and earnings management", Journal of Financial Economics, vol 80, no 3, pp 511-529 Bernstein, L Finandal StatementAnalysis Homewood, Irwin, 1988 Bhojraj, S., Hribar, P., & Picconi, M 2003, "Making Senseof Cents: An Examination of Firms that Marginally Miss or Beat Analysts Forecasts",SSRNeLibrary Bonner, S E., Palmrose,Z V., & Young, S M 1998, "Fraud type and auditor litigation: An analysis of SEC accounting and auditing enforcement releases", Accounting Review,vol 73, no 4, p 503 Bradshaw, M T., Richardson,S A., & Sloan, R G 2001, "Do Analysts and Auditors 1, Use Information in Accruals?", Journal 39, Research, no vol ofAccounting pp 45-74 Bradshaw M T., Richardson,S A., && Sloan R.G 2006, "Earnings quality and financial reporting credibility: An Working SSRN ", investigation empirical Paper, University of Michigan Brandt R., S.Fearnley, A Hines, & V Beattie 1997, " The Financial Reporting Review Panel: an analysis of its activities," in Financial Reporting Today: Current and Emerging Issues, 1998 Edition edn, Milton Keynes, pp 27-54 Braun, G P & Rodriguez, J 2008, "Earnings Management and Accounting Values: A Test of Gray (1988)", Journal of International Accounting Research,vol 7, 1-23 2, pp no Braun, K W 2001, "The Disposition of Audit-Detected Misstatements: An Examination of Risk and Reward Factors and Aggregation Effects", Contemporary Accounting Research, vol 18, no 1, pp 71-99 Brazel, J F & K L Jonesand M F.Zimbelman 2006, "What can non-financial measurestell us about the likelihood of fraud?", Working Paper.North Carolina State University 253 Brown L & H N Higgins 2006, "Managing Earnings Surprises in the U S versus 13 Other Countries", SSRN Working Paper, Georgia State University Brown, L D & Higgins, H N 2001, "Managing earnings surprises in the US versus 13 other countries", Journal ofAccounting and Public Policy, vol 20, no 3, pp 373-398 Brown, L D & Caylor, M L "A Temporal Analysis of Quarterly Earnings Thresholds: Propensities and Valuation Consequences", Accounting Review, Vo1.80, No 2,2005 Brown, P R & Tarca, A "A Commentary on Issues Relating to the Enforcement of International Financial Reporting Standards in the EU", SSRN eLibrary Burgstahler, D & Dichev, I 1997, "Earnings management to avoid earnings decreases and losses", Journal ofAccounting and Economics, vol 24, no 1, pp 99-126 Burgstahler, D & Eames,M J 2009, "Management of earnings and analysts' forecasts to achieve zero and small positive earnings surprises", Journal of BusinessFinance & Accounting, vol 33, no 5, pp 633-652 Burgstahler, D C & Eames, M J 2003, "Earnings Management to Avoid Losses and Earnings Decrease: Are Analysts Fooled? ", Contemporary Accounting Research, vol 20, no 2, pp 253-294 Bushee, 1998 B Bushee, 1998, "The influence of institutional investors on myopic R&D investment behavior", Accounting Review, vol 73, pp 305-333 Bonner, S E., Z-V Palmrose, and S M Young 1998, "Fraud type and auditor Enforcement litigation: An analysis of SEC Accounting and Auditing Releases", The Accounting Review, vol 73, pp 503-532 Cadbury Report 1992, "Report of the Committee on the Financial Aspects of Corporate Governance," Gee, ed., LONDON Cahan S F 1992, "The Effect of Antitrust Investigations on Discretionary Accruals: A Refined Test of the Political-Cost Hypothesis", Accounting Review, vol 67, no 1, pp 77-95 Carlton, D & Fischel, D 1983, "The regulation of insider trading", Stanford Law Review, vol 35, no 857, p 895 Chan, A L C., Lee, E., & Lin, S 2005, "The impact of accounting information in FRS3 UK", Journal The the of the case of mispricing of accruals: quality on Accounting and Public Policy, vol 28, no 3, pp 189-206 Cheng, Q 2000, "Earnings management to meet analysts' forecasts and the impact of stock-based compensation", Journal ofAccounting Research, vol 82, no 3, pp 153-183 254 Chen, C & Sennetti J.T 2005, "Fraudulent Financial Reporting Characteristics of theComputer Industry Under a Strategic-Systems Lens", Journal of Forensic Accounting, vol VI, pp 23.54 Cheng, Q & Warfield T D 2005, "Equity Incentives and Earnings Management", TheAccounting Review,vol 80, no 2, pp 441-476 Chun L & S Gore R 1995, "The Effect of Bank Loan Portfolio Composition on the Market Reaction to and Anticipation of Loan Loss Provisions", Journal of Accounting Research,vol 33, no I, pp 77-94 Clatworthy, M A., Peel, D A., & Pope, P F 2007, "Evaluating the properties of 39, forecasts: Review, bootstrap A Accounting British vol analysts' approach", no 1, pp 3-13 Coase R N 1990, "Accounting and the theory of the firm", Journal of Accounting and Economics, vol 12, no 1-3, pp 3-13 Coles, J L., Hertzel, M., & Kalpathy, S 2006, "Earnings managementaround employee stock option reissues",Journal ofAccounting and Economics, vol 41, no 1-2, pp 173-200 Collins, J If., Shackelford, D A., & Wahlen, J M 1995, "Dank Differences in the Coordination of Regulatory Capital, Earnings, and Taxes", Journal of Accounting Research,vol 33, no 2, pp 263-291 Companies Act 1985, [IMSO, LONDON Companies Act 1989 HMSO, LONDON Conyon, M & Peck, S 1998, "Board size and corporate performance: evidence from Europeancountries", TheEuropean Journal of Finance, vol 74, no 2, pp 291304 Cornsweet, T C 1974, Visual Perception New York Cook, K A., Huston, G R., & Omer, T C 2008, "Earnings Managementthrough Effective Tax Rates:The Effects of Tax-Planning Investment and the SarbanesOxley Act of 2002*", Contemporary Accounting Research vol 25, no 2, pp , 447-471 Creswell J.W 2007, ResearchDesign: Qualitative and Quantitative Approaches U S.A.: SagePublications Inc Christie, A (1987), "On Cross-Sectional Analysis in Accounting Research,"Journal ofAccounting and Economics, Vol 9, No (December), pp 231-5 Daniel A B & R Johnston 2009, "Accounting Discretion: Use or Abuse? An Analysis of Restructuring Charges Surrounding Regulator Action", Contemporary Accounting Research,vol 26, no 3, pp 673-699 255 Datar, S M., Feltham G A., & Hughes, J S 1991, "The Role of Audits and Audit Quality in Valuing New Issues", Journal ofAccounting and Economics pp 349 Davidson S., 1987, Accounting: The Language of Business, seventh edn, Thomas Horton and Daughter, Sun Lakes, Arizona Dhaliwal,, D S., Gleason, C A., & Mills, L F 2004, "Last-Chance Earnings Management: Using the Tax Expenseto Meet Analysts' Forecasts", Contemporary Accounting Research,vol 21, no 2, pp 431-459 DeAngelo, H., DeAngelo, L., & Skinner, D J 1994, "Accounting choice in troubled companies", Journal ofAccounting and Economics, vol 17, no 1-2, pp 113143 DeAngelo, L 1981, "Auditor size and auditor quality", Journal ofAccounting and Economics, vol 1, no September,pp 113-127 DeAngelo, L E 1988, "Managerial competition, information costs, and corporate governance : The use of accounting performance measuresin proxy contests", Journal ofAccounting and Economics, vol 10, no 1, pp 3-36 Dechow P M & Sloan, R G 1991, "Executive incentives and the horizon problem : An empirical investigation", Journal ofAccounting and Economics, vol 14, no 1, pp 51-89 Dechow, P M & Sloan, R G 1995, "Detecting Earnings Management", Accounting Retiiew, vol 70, no 2, pp 193-225 Dechow, P M., Sloan, R G., & Sweeney, A P 1996, "Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC", Contemporary Accounting Research, vol 13, no 1, pp 1-36 Dechow, P M & Skinner, D J 2000, "Earnings Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators", Accounting Horizons, vol 14, no 2, pp 235-250 Defond, NI L & Jiambalvo, J 1994, "Debt covenant violation and manipulation of accruals", Journal ofAccounting and Economics, vol 17, no 1-2, pp 145-176 Defond, M L & Park, C W 2001, "Smoothing income in anticipation of future earnings", Journal ofAccounting and Economics, vol 23, no 2, pp 115-139 Degeorge, F., Patel, J., & Zeckhauser, R 1999, "Earnings Management to Exceed Thresholds", Journal of Business, vol 72, no 1, pp 1-33 Demski, J S & Frimor, H 1999, "Performance Measure Garbling under Renegotiation in Multi-Period Agencies", Journal ofAccounting Research,vol 37, no 3, pp 187-214 Dexter, L A 1970, Elite and specialized interviewing, edn, Northwestern University Press, EVANSTON 256 Dichev, I D & Skinner, D J 2002, "Large-sample evidence on the debt covenant hypothsis", Journal of Accounting Research,vol 40, no 4, pp 1091-1123 Docking, D S., Hirschey, M., & Jones,E 1997, "Information and contagion effects of bank loan-loss reserveannouncements",Journal of Financial Economics, vol 43, no 2, pp 219-239 Drew Fudenberg& JeanTirole 1995, "A Theory of Income and Dividend Smoothing Basedon Incumbency Rents", TheJournal of Political Economy, vol 103, no 103, pp 75-93 Durtschi, C & Easton,P D 2005, "Earnings management?The shapesof the frequency distributions of earnings metrics arc not evidence ipso facto", Journal ofAccounting Research,vol 43, no 4, pp 557-592 Dye T R., Understandingpublic policy, 2006 Prentice I lall, London Dye, R 1984, "Insider trading and incentives", Journal of Business,vol 53, pp 295313 Duh, R R., Lee, W C., & Iiua, C Y 2009, "Non-audit service and auditor independence:an examination of the Procomp effect", Review of Quantitative Finance & Accounting, vol 32, no 1, pp 33-59 Easton, P D & Sommers,G A., 2003 "Scale and Scale Effects in Market-Based Accounting Research",Journal of BusinessFinance & Accounting pp.25-56 Efron, B., 1979 "Bootstrap methods:another look at the jackknife", The annals of Statistics, pp.265-294 Efron, B & Tibshirani, R 1997, "Improvements on Cross-Validation: The 632+ Bootstrap Method", Journal of the American Statistical Association, vol 92, no 438, pp 548-560 Erickson, M & Wang, S w 1999, "Earnings managementby acquiring firms in stock for stock mergers",Journal Accounting 2, 27, Economics, pp no vol of and 149-176 Ettredge, M., L Sun, Pinching L., & Asoka Anandarajan 2006, "Do deferred tax data signal earnings fraud? ", Working Paper, University of Kansas - School of Business Koumnakos, K., C., Siriopoulos., & A., Gcorgopoulos 2005, "Firm acquisitions and earnings management:evidence from Greece", Managerial Auditing Journal, 20, no 7, p 663 vol Fama, E F & Jensen,M C 1985, "Organizational forms and investment decisions", Journal of Financial Economics,vol 14, no 1, pp 101-119 Fanning, K M & Cogger, K O 1998, "Neural network detection of management fraud using published financial data", Intelligent Systems in Accounting, Finance & Management, vol 7, no 1, pp 21-41 257 Farmer, T A 1993, "Testing the Effect of Risk Attitude on Auditor Judgment Using Multiattribute Utility Theory", Journal ofAccounting, Auditing & Finance, vol 8, no 1, pp 91-110 Fearnley S., A Hines, K McBride, & R Brandt 2000, "Problems and politics of regulatory fragmentation: the case of the Financial Reporting Review Panel and the Institute of Chartered Accountants in England and Wales", Journal of Financial Regulation and Compliance, vol 8, pp 16-35 Fearnley S., A Hines, & R.Brandt 2001, "All about Wiggins", Accountancy, vol 128, pp 152-153 Fearnley, S., Hines, T., McBride, K., & Brandt, R 2002, "The impact of the Financial Reporting Review Panel on the independence of auditors and theri attitudes to compliance in the UK", The British Accounting Review, vol 34, no 2, pp 109139 Ferguson, M J., Seow, G S., & Young, D 2004, "Nonaudit Services and Earnings Management: UK Evidence", Contemporary Accounting Research, vol 21, no 4, pp 813-841 Feroz, E., Park, K., & Pastena, V 1991, "The financial and market effects of the SEC's Accounting and Auditing Enforcement Releases", Journal ofAccounting Research, vol 29, no Supplement, pp 107-148 Financial Reporting Council 1991, The State of Financial Reporting: The First Annual Review, Financial Reporting LONDON Francis, J R & Yu, M D 1999, "Big Office Size and Audit Quality", Accounting Review, vol 84, no 5, pp 1521-1552 Frank and Rego, S O 2004, "Do managers use the valuation allowance account to ", Journal of the American targets? manage earnings around certain earnings Taxation Associaiton, vol 28, no 1, pp 43-65 Frankel, R M., Johnson, M F., & Nelson, K K 2002, "The Relation between Auditors' Fees for Nonaudit Services and Earnings Management", Accounting Review, vol 77, no 4, p 71 Glaser, B & Strauss, A 1967, The Discovery of Grounded Theory: Strategies for Qualitative Research, IL edn, CHICAGO Glass, A L & Holyoak, K J 1986, Cognition New York Gore, P., Pope, P F., & Singh, A K 2007, "Earnings management and the distribution of earnings relative to targets: UK evidence", Accounting & Business Research, vol 37, no 2, pp 123-149 Greenbury Report 1995, "Remuneration: Report of a Study Group Chaired by Sir Richard Greenbury," in Greenbury Report, Gee, ed., LONDON 258 Guay, W R., Kothari, S P., & Watts, R L 1996, "A Market-Based Evaluation of Discretionary Accrual Models", Journal of Accounting Research,vol 34, no 3, pp 83-105 Guidry F, A Leone, &S Rock 2006, "Earnings-based bonus plans and earnings management by business-unit managers", Journal ofAccounting and Economics Greene,W H., "Econometric Analysis", 5`'' Edition, London 2002 Hackenbrack, K & Nelson, M W 1996, "Auditors' Incentives and Their Application of Financial Accounting Standards", Accounting Review, vol 71, no 1, pp 4359 Han, J C Y & Shiing-Wu, W 1998, "Political Costs and Earnings Management of Oil Companies During the 1990 Persian Gulf Crisis", Accounting Review, vol 73, no 1, p 103 Hand, J R M 1990, "A Test of the Extended Functional Fixation Hypothesis", Accounting Review, vol 65, no 4, pp 740-763 Hayn, C 1995, "The information content of losses", Journal ofAccounting Economics, vol 20, pp 125-153 and Hawkins, D "Corporate Financial Reporting and Analysis Homewood", III.: Dow Jones-Irwin, 1986 Healy, P., S.Kang, & K Palepu 1987, "The effect of accounting procedure changeson COs cash salary and bonus compensation", Journal ofAccounting and Economics, vol 9, pp 7-34 Healy, P M 1985, "The effect of bonus schemeson accounting decisions", Journal of Accounting and Economics, vol 7, no 1-3, pp 85-107 Healy, P M & Palepu, K G 1993, "The Effect of Firms' Financial Disclosure Strategies on Stock Prices", Accounting Horizons, vol 7, no 1, pp 1-11 Healy, P M & Wahlen, J M 1999, "A Review of the Earnings Management Literature and Its Implications for Standard Setting", Accounting Horizons, vol 13, no 4, pp 365-383 Henwood, K & Pigeon, N 1995, "Grounded theory and psychoogical research", The Psychologist, vol 8, no 3, pp 115-118 Hines A., Fearnley S., & Brandt 2001, "All about Wiggins", Accountancy, vol 128, pp 152-153 Hines A., S Fearnley, K McBride, & R.Brandt 2001, "We're off to see the wizard; an evaluation of director's and auditors' experienceswith the Financial Reporting Review Panel", Accounting, Auditing and Accountability Journal, vol 5, pp 5483 259 Hodge, F D 2003, "Investors' Perceptions of Earnings Quality, Auditor Independence, and the Usefulness of Audited Financial Information", Accounting Horizons, vol 17, pp 37-48 Holland, K & Jackson, R H G 2004, "Earnings management and deferred tax", Accounting & Business Research, vol 34, no 2, pp 101-123 Holthausen, R W 1981, "Evidence on the effect of bond covenants and management compensation contracts on the choice of accounting techniques: The case of the depreciation switch-back", Journal of, 4ccounting and Economics, vol 3, no 1, pp 73-109 Holthausen, R W & Leftwich, R W 1983, "The Economic Consequences of Accounting Choice: Implications of Costly Contracting and Monitoring", Journal ofAccounting & Economics, vol 5, no 2, p 77 Holthausen, R W., Larcker, D F., & Sloan, R G 1995, "Annual bonus schemes and the manipulation of earnings", Journal ofAccounting and Economics, vol 19, no 1, pp 29-74 Hughes, P J 1986, "Signaing by Direct Disclosures Under Asymmetric Function", Journal ofAccounting and Economics pp 119-142 latridis, G & Kadorinis, G 2009, "Earnings management and firm financial motives: A financial investigation of UK listed firms", International Review of Financial Analysis, vol 18, no 4, pp 164-173 Internanional Accounting Standards Board 2007, International Standards (IFRSs) LONDON Financial Reporting Karamanou, I & Vafeas, N., 2005, "The Association between Corporate Boards, Audit Committees, and Management Earnings Forecasts: An Empirical Analysis", Journal ofAccounting Research, vol 43, no 3, p 453 Jacob, J & Jorgensen, B N 1997, "Earnings management and accounting income 42, 2, 211-253 Research, Journal vol no pp aggregation", ofAccounting Jeffrey L Colesa, M Hertzela, & Swaminathan K 2006, "Earnings management around employee stock Economics, 41, 173-200 Journal vol pp and option reissues", ofAccounting Jensen, M C & Meckling, W H 1976, "Theory of the firm: Managerial behavior, agency costs and ownership structure", Journal of Financial Economics, vol 3, no 4, pp 305-360 Jeong B., K I M., Chung, & Firth, M I C H 2003, "Auditor Conservatism, Asymmetric Monitoring, and Earnings Management", Contemporary Accounting Research, vol 20, no 2, pp 323-359 Johnson, V E., Khurana, I K., & Reynolds, J K 2002, "Audit-Firm Tenure and the Quality of Financial Reports", Contemporary Accounting Research, vol 19, no 4, pp 637-660 260 Jones,J J 1991, "Earnings ManagementDuring Import Relief Investigations", Journal of Accounting Research,vol 29, no 2, pp 193-228 Kahneman, D & Tversky, A 1979, "Prospect theory: An analysis of decision under risk ", Econometrica, vol 47, no 2, pp 262-327 Kahneman, D & Tversky, A 1979, "On the interpretation of intuitive probability: A reply to JonathanCohen", Cognition, vol 7, no 4, pp 409-411 Kaminski, K A., Wetzel, T S and Guan, L 2004 "Can financial ratios detect fraudulentfinancial reporting? " Managerial Auditing Journal, 19 (1),pp 15-28 Kang, S H & Sivaramakrishnan,K 1995, "Issues in testing earnings management and an instrumental variable approach",Journal of Accounting Research,vol 33, no Autumn, pp 353-367 Kaplan, R S 1985,"Evidence on the effect of bonus schemeson accounting procedureand accrual decisions", Journal ofAccounting and Economics, vol 7, no 1-3, pp 109-113 Kaplan, R S 1985, "Comments on Paul Ilealy: D0 Evidence on the effect of bonus schemes on accounting procedures and accrual decisions", Journal of Accounting and Economics, vol 7, no 7, pp 109-113 Kasznik, R 1999, "On the Association between Voluntary Disclosure and Earnings Management", Journal ofAccounting Research, 57-81 1, 37, pp no vol Kellog, I & L B Kellog 1991, Fraud, financial in dressing and negligence window statements, McGraw Hill Key, K G 1997, "Political cost incentives for in earnings management the cable television industry", Journal ofAccounting and Economics, vol 23, no 3, pp 309-337 Kothari, S P., Leone, A J., & Wasley, C E 2005, "Performance matched discretionary accrual measures",Journal 39, & Economics, Accounting vol of no 1, pp 163-197 Krishnan, G V 2003, "Audit Quality and the Pricing of Discretionary Accruals", Auditing, vol 22, no 1, p 109 Krishnan, G V 2003, "Does Big Auditor Industry Expertise Constrain Earnings Management?", Accounting Horizons, vol 17, pp 1-16 Landon, S 2009, "The capitalization of taxes in bond prices: Evidence from the market for Government of Canadabonds", Journal of Banking & Finance, vol 33, no 12, pp 2175-2184 Larcker, D F & Richardson, S A 2004, "Fees Paid to Audit Firms, Accrual Choices, and Corporate Governance",Journal ofAccounting Research,vol 42, no 3, pp 625-658 261 Leland, H E & Pyle, D H 1977, "Informational asymmetries, financial structure, and financial intermediation", Journal of Finance, vol 32, pp 371-387 Lennox, C 1999, "Auditor quality and auditor size: an evaluation of reputation and deep pockets hypotheses", Journal ofBusiness Finance and Accounting, vol 26, no September/October, pp 779-805 Leone, A J & Van Horn, R L 2005, "How non-profit hospitals manage earnings", Journal of Health Economics, vol 24, no 4, pp 815-837 Leuz, C., Nanda, D., & Wysocki, P D 2003, "Earnings management and investor protection: an international comparison", Journal of Financial Economics, vol 69, no 3, pp 505-527 Lev, B & S.R.Thiagarajan 1993, "Fundamental information analysis", Journal of Accounting Research, vol 31, no 2, pp 190-215 Levitt, A 1998, "Arthur Levitt Addresses "Illusions"", 186, no 6, pp 12-13 Journal ofAccountancy, vol Levitt, J 1998, "The 'Numbers Game"', CPA Journal, vol 68, no 12, p 14 Lincoln, Y S & Guba, E G 1985,Naturalistic Inquiry LONDON Loebbecke, J.K., M M Eining, and J.J Willingham 1989, "Auditor's experience with material irregularities: Frequency, nature, and detectability" Auditing - A Journal of Theory and Practice, vol 9, no 1:pp 1-28 Loebbecke J K., and J.J Wiullingham 1989, "Review of SEC accounting and auditing enforcement releases", Critical Perspectives in Accounting, vol 14, no 5, pp 84-113 Marinakis P., J.Hasseldine, & R Berry 2009, "The distribution of earnings among thresholds", International Conference in Accounting and Finance, Athens 2009 Marquardt, C A & Wiedman, C I 2004, "How Are Earnings Managed? An Examination of Specific Accruals", Contemporary Accounting Research, vol 21, no 2, pp 461-491 Matsumoto, D A 2002, "Management's Incentives to Avoid Negative Earnings Surprises", Accounting Review, vol 77, no 3, pp 483-514 McBamet, D & Whelan, C 1999, Creative Accounting and the cross-eyed javelin thrower CHICHESTER McEnroe, J E & Martens, S C 2001, "Auditors' and Investors' Perceptions of the "Expectation Gap "", Accounting Horizons, vol 15, no 4, pp 345-358 McBarnet D & C Whelan 1991, "The elusive spirit of the law: formalism and the struggle for legal control", Modern Law Review, vol 54, pp 848-873 262 McNichols, M R Wilson, G P 1988, "Evidence of Earnings Managementfrom the Provision for Bad Debts", Journal ofAccounting Research,vol 26, no 3, pp I31 McNichols, M F 2000, "Researchdesign issuesin earnings managementstudies", Journal of Accounting and Public Policy, vol 19, no 4-5, pp 313-345 Meek, G., RameshP.R., & Christopher J.S 2007, " Evidence on factors affecting the relationship betweenCEO stock option compensation and earnings management",ReviewofAccounting and Finance, vol 6, no 3, pp 304-351 Miller, G S & Skinner, D J 1998,"Determinants of the valuation allowance for deferred tax assetsunder SFAS No 109", Accounting Review, vol 73, no 2, p 213 Moyer, S E 1990,"Capital adequacyratio regulations and accounting choices in commercial banks", Journal ofAccounting and Economics, vol 13, no 2, pp 123-154 National Association of Certified Fraud Examiners 1993, Cooking the books: f t7:at every accountant should know aboutfraud New York: NASBA Nelson, M W., Elliott, J A., & Tarplcy, R L 2002, "Evidcncc from Auditors about Managers'and Auditors' Earnings Management Decisions", Accounting Review, vol 77, no 4, p 175 for Noah, P B., Anthony, H C., Jr., & Shelley, C R "Analyst 2003, tools -C detecting financial reporting fraud", Commercial Lending Review, vol 18, no 5, p 31 Noe.T H 1977, "Insider trading and the problem of corporate agency", Journal of Law, Economics,and Organization, vol 13, no October, pp 287-318 Othman, H B & Zeghal, D 2006, "A study of earnings-managementmotives in the Anglo-American and Euro-Continental accounting models: The Canadianand French cases", TheInternational Journal of Accounting, vol 41, no 4, pp 406435 Palmrose,Z 1988, "An analysis of auditor litigation and audit service quality", The Accounting Review,vol 63, no January, pp 55-73 Payne, J L & Robb, S W G 2000, "Earnings management: the effect of cx ante earnings expectations", Journal of Accounting Aucling and Finance, vol 15, no 4, pp 371-392 Peasnell, K V., Pope, P F., & Young, S 2001, "The characteristics of firms subject to adverse rulings by the Financial Reporting Review Panel", Accounting fie Business Research, vol 31, no 4, pp 291-311 Peasnell,K V., Pope, P F., & Young, S 2005, "Board Monitoring and Earnings Management: Do Outside Directors Influence Abnormal Accruals?", Journal of BusinessFinance & Accounting, vol 32, no 7-8, pp 1311-1346 263 Peasnell, K V., Pope P.F., & Young, S 2000, "Accrual Management to meet earnings targets: UK evidence pre- and post- cadbury", The British Accounting Review, vol 32, no 4, pp 415-445 Peel M 2000, "Blowing the whistle on dubious practices: the outgoing head of the accounting standardswatchdog bows out with timely advice", Financial Times p 15 Perols, J L & Lougee, B A "The relation between earnings management and financial statement fraud", Advances in Accounting, vol In Press Corrected Proof Petroni, K R 1992, "Optimistic reporting in the property- casualty insurance industry", Journal ofAccounting and Economics, vol 15, no 4, pp 485-508 Philips, J., Pincus, M., & Rego, S O 2003, "Earnings management: new evidence basedon deferred tax expense",Accounting Review, vol 78, no 2, pp 491-521 Phillips, F 2001, "Discussion of "The Disposition of Audit-Detected Misstatements: An Examination of Risk and Reward Factors and Aggregation Effects"", Contemporary Accounting Research,vol 18, no 1, pp 101-106 Plaistowe I 1992, "The FRC and its Impact", Accounting & BusinessResearch pp 89 Pope, P F & Walker, M 1999, "International Differences in the Timeliness, Conservatism, and Classification of Earnings", Journal ofAccounting Research, vol 37, no 3, pp 53-87 Prawitt, D F., Sharp, N Y., & Wood, D A 2009, "Internal Audit Outsourcing and the Risk of Misleading or Fraudulent Financial Reporting: Did Sarbanes-Oxley Get It Wrong? ", SSRN eLibrary PriceWaterhouseCoopers2009, "Anticipate the unpredictable: Preventing and detecting financial crime, " PriceWaterhouseCoopers,ed., LONDON Rangan, S 1998, "Earnings around ", Are they overstated? seasoned equity offerings: Journal of Financial Economics, vol 50, pp 101-122 Richardson, S A., Tuna, A I., & Wu, M 2002, "Predicting Earnings Management: The Caseof Earnings Restatements",SSRNeLibrary Ronen, J., Tzur, J., & Yaari, V 2007, "The effect of directors' equity incentives on earnings management", Journal ofAccounting and Public Policy, vol 25, no 4, pp 359-389 Rosner, R 2003, "Earnings Manipulation in Failing Firms", Contemporary Accounting Research, vol 20, no 2, pp 361-408 Rossi, S P S., Schwaiger, M S., & Winkler, G 2009, "How loan portfolio diversification affects risk, efficiency and capitalization: A managerial behavior 264 model for Austrian banks", Journal of Banking & Finance, vol 33, no 12, pp 2218-2226 Roychowdhyry, S 2006, "Earnings managementthrough real activities manipulation", Journal ofAccounting Research,vol 37(Supplement),pp 5387 Choi Y., S.Lin, M Walker, & S.Young 2007, "Disagreement over the persistence of earnings components: evidence on the properties of management-specific adjustments to GAAP earnings", Review ofAccounting Studies, vol 12, no Schipper, K 1989, "COMMENTARY on Earnings Management", Accounting Horizons, vol 3, no 4, pp 91-102 Scholes,M., P.Wilson, & M Wolfson 1990, "Tax planning, regulatory capital planning, and financial reporting strategy", Review of Financial Studies, vol 3, pp 625-650 Scott W R 1997, Financial Accounting Theory Prentice Hall, Scarborough Seyhun, H N & Bradley, M 1997, "Corporate bankruptcy and insider trading", Journal of Business no 70, pp 189-216 Shah A 1996, "Creative compliance in financial reporting", Accounting Organizations and Society, vol 21, no January, pp 23-39 Shah, A 1998, "Exploring the incentives and constrains on creative accounting in the United Kingdom", European Accounting Review, vol 7, no May, pp 83-104 Shen,C H & Chill, H L 2005, "Investor protection, prospect theory, and earnings management:An international comparison of the banking industry", Journal of Banking & Finance, vol 29, no 10, pp 2675-2697 Shivakumar, L 2000, "Do firms mislead investors by overstating earnings before seasonedequity offerings?", Journal ofAccounting and Economics, vol 29, no 3, pp 339-371 Siew, H T., Ivo, W., & Wong, T J 1998, "Earnings Managementand the Long-Run Market Performanceof Initial Public Offerings", Journal of Finance, vol 53, no 6, pp 1935-1974 Sloan, R G 1996, "Do Stock Prices Fully Reflect Information in Accruals and Cash Flows About Future Earnings? ", Accounting Review, vol 71, no 3, pp 289-315 Smith A 1982, The wealth of nations Penguin Classics Smith, T 1992, "Creative Accounting, " in Accounting for Growth, Century Business, ed., London Somnath D., Shroff K, & H Zhang 2009, "Quarterly Earnings Patternsand Earnings Management", Contemporary Accounting Research, vol 26, no 3, pp 797-831 265 Stice, J D 1991 "Using financial and market information to identify pre-engagement factors associated with lawsuits against auditors", The Accounting Review, Vol 66, pp 516-553 Styles, A 1999, "An exploratory investigation of the symbolism of the regulatory actions of the Financial Reporting Review Panel", European Accounting Review, vol 18, no 2, pp 214-231 Summers, S L & Sweeney, J T 1998, "Fraudulently misstated financial statements and insider trading: An empirical analysis", The Accountng Review, vol 73, no January, pp 131-146 Sweeney, A P 1994, "Debt-covenant violations and managers' accounting responses", Journal ofAccounting and Economics, vol 17, no 3, pp 281-308 Teoh, S H., Welch, I., & Wong, T J 1998, "Earnings management and the long-term under performance of initial public offerings", Journal of Finance, vol 53, pp 1935-1974 Thomas, J & Zhang, H 2002, "Inventory Changes and Future Returns", Review of Accounting Studies, vol 7, no 2, pp 163-187 Thomas, T &X Zhang 2000, "Identifying unexpected accruals: a comparison of current approaches ", Journal ofAccounting & Economics, vol 2, no 1, pp 7998 Titman, S & Trueman, B 1986, "Information Quality and the Valuation of New Issues", Journal ofAccounting and Economics, vol 159, pp 159-172 Turner, L E & Godwin, J H 1999, "Auditing, Earnings Management, and International Accounting Issues at the Securities and Exchange Commission", Accounting Horizons, vol 13, no 3, pp 281-297 Tweedie, D & Whittington, G 1990, "Financial reporting: current problems and their implications for systematicreform", Accounting & BusinessResearch, vol 21, 87-102 Winter, pp no Veall, M R 1986, "Bootstrapping regression estimators under first-order serial 41-44 21, Letters, Economics pp vol correlation", Veall, M R 1987, "Bootstrapping the probability distribution of peak electricity demand" International Economic Review vol 28, pp 203-212 Vernon, J R 2000, "Information Asymmetry and Earnings Management: Some Evidence", Review of Quantitative Finance and Accounting, vol 15, no 4, p 325 Victor J.Defeo, R A Lmbert, & D F Larcker 1989, " The Executive Compensation Effects of Equity-for-Debt Swaps", The Accounting Review, vol 64, no 2, pp 201-227 266 Vinod H D "Bootstrap methods: applications in econometrics", Prentice Hall, 1993 London Vinod, H D 1995, "Double bootstrap for shrinkage estimators", Journal of Econometrics, vol 68, no 2, pp 287-302 Wahlen, J M 1994, "The Nature of Information in Commercial Bank Loan Loss Disclosures", Accounting Review, vol 69, no 3, pp 455-478 Warfield, T D., Wild, J J., & Wild, K L 1995, "Managerial ownership, accounting choices, and informativeness of earnings", Journal ofAccounting & Economics, vol 20, no 1, pp 61-91 Watts RL & JL Zimmerman 1978, "Positive accounting theory", Accounting Review, vol 81, no Watts, R L & Zimmerman, J L 1978, "Towards a Positive Theory of the Determination of Accounting Standards", Accounting Review, vol 53, no 1, p 112 Watts, R L & Zimmerman, J L 1990, "Positive Accounting Theory: A Ten Year Perspective", Accounting Review, vol 65, no 1, pp 131-156 Wilks, T J & Zimbelman, M F 2004, "Decomposition of Fraud-Risk Assessments and Auditors' Sensitivity to Fraud Cues", Contemporary Accounting Research, vol 21, no 3, pp 719-745 Wright, C J., Shaw, J R., & Guan, L 2006, "Corporate Governance and Investor Protection: Earnings Management in the U K and U S", Journal of International Accounting Research, vol 5, no 1, pp 25-40 Xu, X 2009, "Aligning debt and equity claimant interests: Evidence from dual claim investors", Journal of Banking & Finance, vol 33, no 12, pp 2227-2240 Yermack, D 1996, "Higher market valuation of a company with a small board of directors", Journal of Financial Economics, vol 40, no February, pp 185-221 Zmijewski, M E 1984, "Methodological Issues Related to the Estimation of Financial Distress Prediction Models", Journal ofAccounting Research, vol 22, pp 59-82 267 .. .AN INVESTIGATION OF EARNINGS MANAGEMENT AND EARNINGS MANIPULATION IN THE UK Pantelis Marinakis, Msc Thesis submitted to the University of Nottingham Doctor of Philosophy April 2011 for the. .. structure of the thesis 1.2 Aims and objectives The broad research objective of this thesis it to deepen the current understanding of earnings management and the mechanics of earnings manipulation. .. and whether such earnings management can be mitigated by additional standards 2.4 Evidence of Income Increasing Earnings Management Four sources of incentives for income increasing earnings management