Title: When is earnings management really good news? Evidences from Indonesia

Authors: Felizia Arni Rudiawarni; Dedhy Sulistiawan; Yie Ke Feliana

Addresses: Accounting Department, University of Surabaya, Jl. Raya Kalirungkut, Surabaya 60293, East Java, Indonesia ' Accounting Department, University of Surabaya, Jl. Raya Kalirungkut, Surabaya 60293, East Java, Indonesia ' Accounting Department, University of Surabaya, Jl. Raya Kalirungkut, Surabaya 60293, East Java, Indonesia

Abstract: This study aims to examine the impact of earnings management and stock return. The magnitude of accruals and operating cash flows are the important feature that we add to this study. This feature gives deeper analysis of how earnings management affects stock return. We use Indonesian data from 2011 to 2013 as our sample. Three earnings management models are applied for this research: (1) Jones, (2) Modified Jones and (3) Kaznik model. We find that discretionary accruals cannot explain stock return, but after considering the magnitude of accruals and operating cash flow the result is different. Discretionary accruals affect stock return positively, only when accruals are higher than operating cash flow. These findings contribute to earnings management and market-based accounting researches.

Keywords: earnings management; discretionary accruals; stock returns; Indonesia; operating cash flows.

DOI: 10.1504/IJTGM.2017.082375

International Journal of Trade and Global Markets, 2017 Vol.10 No.1, pp.47 - 57

Received: 22 Aug 2016
Accepted: 02 Sep 2016
Published online: 21 Feb 2017 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article