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Earnings management and abnormal returns: Evidence from the 1970–1972 Price Control Regulations

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  • Robert G. Bowman
  • Farshid Navissi

Abstract

We examine the association between abnormal returns and earnings management in the context of price control regulations to test the construct validity of the earnings management model. Abnormal returns are used as a market–based measure, and discretionary accruals are employed to measure earnings management. Our results support the hypotheses that (1) price control regulations affect firms’ security prices negatively, (2) firms make income–decreasing discretionary accruals to increase the likelihood of price increase approval, and (3) firms that are affected most negatively by the regulations manage earnings more aggressively. We conclude that the earnings management model we use in this study is capable of predicting opportunistic discretionary accruals.

Suggested Citation

  • Robert G. Bowman & Farshid Navissi, 2003. "Earnings management and abnormal returns: Evidence from the 1970–1972 Price Control Regulations," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 43(1), pages 1-19, March.
    • Handle: RePEc:bla:acctfi:v:43:y:2003:i:1:p:1-19
    DOI: 10.1111/1467-629X.00080
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    Cited by:

    1. Pasquale Ruggiero & Daniela Sorrentino & Riccardo Mussari, 2022. "Earnings management in state-owned enterprises: bringing publicness back in," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(4), pages 1277-1313, December.
    2. Maryam Safari & Barry J. Cooper & Steven Dellaportas, 2016. "The Influence of Remuneration Structures on Financial Reporting Quality: Evidence from Australia," Australian Accounting Review, CPA Australia, vol. 26(1), pages 66-75, March.
    3. Wang, Chi-Feng & Chen, Li-Yu & Chang, Shao-Chi, 2011. "International diversification and the market value of new product introduction," Journal of International Management, Elsevier, vol. 17(4), pages 333-347.
    4. Mughal, Azhar & Tao, Qizhi & Sun, Yicheng & Xiang, Xueman, 2021. "Earnings management at target firms and the acquirers’ performance," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 384-404.
    5. Yan Zhang & Qiongjing Yang, 2021. "Assessing hotel decision-making of disabled guests: satisfaction correlation study between online comments’ credibility and perceived risk," Electronic Commerce Research, Springer, vol. 21(3), pages 767-786, September.

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