The Sale of Assets to Manage Earnings in Japan

Don Herrmann, Tatsuo Inoue and Wayne B. Thomas

Journal of Accounting Research, 2003, vol. 41, issue 1, 89-108

Abstract: In this article we investigate Japanese managers’ use of income from the sale of fixed assets and marketable securities to manage earnings. The earnings management target examined is Japanese managers’ forecasts of current–year earnings. We find a negative relation between income from asset sales and management forecast error. When current reported operating income is below (above) management's forecast of operating income, firms increase (decrease) earnings through the sale of fixed assets and marketable securities. The results hold after controlling for expected future performance, debt–to–equity ratio, size, growth, and last year's income from asset sales.

Date: 2003
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