 Does incorporating non-linearity into discretionary accrual models improve their performance?Huishan Wan Advances in accounting, 2013, vol. 29, issue 1, 85-96 Abstract: Using a large sample of firms that restated earnings, this study investigates whether incorporating non-linearity (conditional conservatism) into discretionary accrual models improves their performance in detecting earnings management. The findings of this study are important because discretionary accrual models play a prominent role in several streams of accounting research and the models' ability to isolate the discretionary (managed) component from the non-discretionary (unmanaged) component of total accruals is critical. If the conventional linear discretionary accrual models are mis-specified, it is likely to result in misleading inferences about earnings management behavior. The findings indicate that the non-linear specification improves the performance of most linear models. The findings also indicate that a more sophisticated linear model that incorporates a performance measure and a future growth measure outperforms other simple models. Keywords: Discretionary accrual models; Non-linearity; Earnings restatements; Earnings management (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:29:y:2013:i:1:p:85-96 DOI: 10.1016/j.adiac.2013.03.008 Access Statistics for this article Advances in accounting is currently edited by Dennis Caplan More articles in Advances in accounting from Elsevier |
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