Effects of Earnings Management Strategy on Earnings Predictability: A Quantile Regression Approach Based on Opportunistic Versus Efficient Earnings Management

Leon Li, Nen-Chen Richard Hwang and Gilbert Nartea

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: This study argues that the managerial choice of earnings management strategy may be contingent upon a firm’s information asymmetry and such a strategy affects the firm’s earnings predictability. Measuring information asymmetry by earnings predictability based on the subsequent dispersion in analysts’ forecasts and employing a quantile regression to analyze 28,383 U.S. firm-year observations obtained from 1988 to 2014, this study reports that the effect of earnings management strategy on earnings predictability is non-uniform. Specifically, the amount of absolute discretionary accruals negatively (positively) relate to the subsequent dispersion in analysts’ forecasts in the low (high) quantiles of the latter. These results support our hypothesis that a firm may implement efficient or opportunistic earnings management strategies according to the degree of information asymmetry between the firm’s management and corporate outsiders.

Keywords: Discretionary accruals; analysts’ forecasts dispersion; quantile regression (search for similar items in EconPapers)
JEL-codes: G12 G32 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2019-08-01
New Economics Papers: this item is included in nep-bec and nep-cfn
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:19/09

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