The incidence of earnings management on information asymmetry in an uncertain environment: Some Canadian evidence

Denis Cormier, Sylvain Houle and Marie-Josée Ledoux

Journal of International Accounting, Auditing and Taxation, 2013, vol. 22, issue 1, 26-38

Abstract: In this study, we investigate the association between earnings management and information asymmetry considering environmental uncertainty. Results show that a complex and dynamic environment weakens the relationship between discretionary accruals and information asymmetry measured as share price volatility and bid-ask spread. More specifically, the positive relationship between earnings management and information asymmetry is weakened for diversified firms, those intensively investing in R&D, and those facing high sales volatility. This highlights the difficulty for investors to assess earnings management in an uncertain environment. Finally, in such a context, discretionary accruals are more likely to be detected by investors for firms cross-listed on a U.S. stock exchange, a more liquid and transparent stock market compared with the Canadian stock market.

Keywords: Corporate governance; Earnings management; Environmental uncertainty; Information asymmetry (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jiaata:v:22:y:2013:i:1:p:26-38

DOI: 10.1016/j.intaccaudtax.2013.02.002

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