Title: Earnings management through discretionary accruals: evidences from COMPUSTAT

Authors: Haiyan Zhou, Kai S. Koong

Addresses: Department of Accounting and Business Law, College of Business Administration, The University of Texas – Pan American, Edinburg, TX 78539, USA. ' Department of Computer Information Systems and Quantitative Analysis, College of Business Administration, The University of Texas – Pan American, Edinburg, TX 78539, USA

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.

Keywords: earnings management; discretionary accruals; pre-discretionary income; PDI; modified Jones model; accounting services; accounting standards.

DOI: 10.1504/IJSS.2006.008732

International Journal of Services and Standards, 2006 Vol.2 No.2, pp.190 - 202

Published online: 18 Jan 2006 *

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