Please enable JavaScript.

Coggle requires JavaScript to display documents.

Earning management (Leuz et al 2003 (metod (operationering of mesurements…

- - - - earnings management
        
        incentives arise in part from conflict of intrests between firms´insiders and outsiders
        
        insiders can use their control over the firm to benefit themselves as th cost of other stakeholders
        
        example
        
        perquisite consumption
        
        transfer of assets to other firms owned by insiders
        
        insides has incentive to conceal their private control benefits from outsiders otherwise they might take disciplinary action against them
        
        earnings management serves two function it can be used to mask true performance and be used to conceal private control benefits, in ways that dont give outsiders just cause to intervene
        
        definition
        
        alteration of firms reported economic performance by insiders to either mislead some or to influence contractual outcomes
      - insiders
        
        controlling owners or managers
      - outsiders
      - legal systems
        
        protects investors by conferring rights to discipline insiders and enforce contracts designed to limit insiders private control benefits
  - - - negativly
        
        legal enforcement
        
        outsider rights
      - positivly
        
        level of private control benefits enjoyed by insiders
  - - - smoothing reported operating earnings using accruals
        
        the country median ratio of the firm-level standard deviation of operation earnings divided by the firm-level standard deviation of cash flow from operations
    - - pervasiveness of earnings management
    - - country clusters
        
        Cluster 1
        
        features
        
        outsider economies
        
        large stock markets
        
        dispersed ownership
        
        strong investor rights
        
        strong legal enforcement
        
        example
        
        UK
        
        US
        
        Cluster 2
        
        features
        
        insider economies
        
        less developed stock markets
        
        concentrated ownership
        
        weak investor rights
        
        strong legal enforcement
        
        example
        
        SWE
        
        GER
        
        Cluster 3
        
        features
        
        insider economies
        
        weak legal enforcement
        
        example
        
        ITA
        
        IND
  - - - it manifest itself in diffrent forms
- - - - real activities manipulation
    - - deviations from normal levels
        
        production costs
        
        definition
        
        sum of
        
        cost of good sold (COGS) (KSV)
        
        change in inventory
        
        discretionary expenses
        
        defintion
        
        the sum of
        
        R&D expenses
        
        advertising expenses
        
        selling, general and administrative expences
        
        cashflow from operations (CFO)
        
        as stated in the statement of casflow
        
        normal levels
    - - firms reporting around zero earnings threshold
  - - - instances
        
        price discounts to temporaly increase sales
        
        overproduction to report lower costs of goods sold
        
        reduction of discretionary expeditures to improve reported margins
    - - activities are less prevalent in the presence of sophisticated investors
      - industry membership
      - stock of inventories and recievables
      - incentives to meet zero earnings
      - incentives to meet annual analyst forecasts
        
        less robust
  - - - earnings management
        
        types
        
        accrual manipulation
        
        features
        
        no direct cash flow consequences
        
        examples
        
        underprovisioning for bad debt expenses
        
        delaying asset write-offs
        
        disadvanatage
        
        might not be enough to reach threshold
        
        real activities manipulation
        
        features
        
        affects cash flow and in some cases accruals
        
        can reduce firm value because actions taken in the current period to increase earnings can have a negative effect on cash flows in future periods
        
        example
        
        1 more item...
        
        advantages
        
        less private cost at least short term for managers
        
        less likely to draw auditory or regulator scrutiny
        
        disadvantages
        
        imposes potentially greater long-term costs
        
        has do be impemented prior to fiscal year end
        
        definion
        
        management actions that deviate from normal business practices, undertaken with the primary objective of meeting certain earnings thresholds
        
        Definitions
        
        "occurs when managers use judgement in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting practices"
- - - - earning management
    - - abnormal accruals