Earnings management through discretionary accruals: evidences from COMPUSTAT
by Haiyan Zhou, Kai S. Koong
International Journal of Services and Standards (IJSS), Vol. 2, No. 2, 2006

Abstract: This study examines the existence and prevalence of earnings management behaviour through Discretionary Accruals (DA). Using the modified Jones cross-sectional model to identify DA, firms listed in the COMPUSTAT database were classified into four groups based on their level of Pre-Discretionary Income (PDI): big-bath firms, loss avoidance firms, firms with small positive earnings and sugar-bowling firms. For big-bath firms and loss avoidance firms, the relationship between DA and PDI was found to be positive. Among firms with small positive earnings and sugar bowling, the relationship was negative.

Online publication date: Wed, 18-Jan-2006

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