Real earnings management and the strategic release of new products: evidence from the motion picture industry

James Jianxin Gong, S. Mark Young () and Aner Zhou
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James Jianxin Gong: California State University at Fullerton
S. Mark Young: University of Southern California
Aner Zhou: San Diego State University

Review of Accounting Studies, 2023, vol. 28, issue 3, No 3, 1209-1249

Abstract: Abstract Prior studies on real earnings management (REM) focus mainly on estimating abnormal operating and investing activities at the firm level. We extend this literature by providing micro-level evidence regarding how financial reporting pressures influence new product release decisions, or product-level REM. Specifically, we compare how public and private studios differentially time the release of their movies. We find that, faced with pressure to boost quarterly revenues and earnings, public studios are more likely to release movies with high expected revenues in the last month of a fiscal quarter, compared to private studios. This documented result is stronger for firms with recent poor past performance, but is not present for movies in genres with a more targeted release window (e.g., romance and horror movies) and those using directors who have a history of collaboration with the studio. These results suggest that studios choose REM activities that have a lower impact on consumer demand and that minimize conflict with talent, consistent with choosing less costly activities to achieve financial reporting goals. A negative consequence of this financial reporting–driven product release strategy is that movies released in the last month of a quarter have lower international box office revenues. Taken together, these results provide evidence of the existence and consequences of product-level REM.

Keywords: Real Earnings Management; Operating Decisions; New Product Release Decisions; Cost Capitalization; Financial Reporting Concerns; Motion Picture Industry; M11; M40; M41 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11142-023-09793-6

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