Classification shifting within non-recurring items

Masako Darrough, Yong Gyu Lee and Hyung Il Oh

Asia-Pacific Journal of Accounting & Economics, 2019, vol. 26, issue 3, 185-206

Abstract: This study examines whether managers shift income-decreasing special items to discontinued operations. We expect managers to engage in this form of classification shifting because discontinued operations are reported below income before extraordinary items and discontinued operations (IBXD) on the income statement. Consistent with this expectation, we find evidence suggesting that managers classification-shift asset write-downs to discontinued operations. Furthermore, we find that classification shifting from asset write-downs to discontinued operations is driven by firms with incentives to avoid reporting a negative IBXD and by firms with equity market benefits to classification shifting.

Date: 2019
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DOI: 10.1080/16081625.2017.1392877

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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