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Accruals Management to Achieve Earnings Benchmarks: A Comparison of Pre‐managed Profit and Loss Firms

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  • Abhijit Barua
  • Joseph Legoria
  • Jacquelyn Sue Moffitt

Abstract

This study examines whether firms with profits before accruals management are more likely than firms with losses before accruals management to meet or exceed earnings benchmarks when pre‐managed earnings are below those benchmarks. We extend Brown (2001) by documenting that the differential propensity to achieve earnings benchmarks by profitable and nonprofitable firms results from differential accruals management behavior. We find that firms with profits before accruals management are more likely than firms with losses before accruals management to have pre‐managed earnings below both analysts' forecasts and prior period earnings and reported earnings above these benchmarks.

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  • Abhijit Barua & Joseph Legoria & Jacquelyn Sue Moffitt, 2006. "Accruals Management to Achieve Earnings Benchmarks: A Comparison of Pre‐managed Profit and Loss Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(5‐6), pages 653-670, June.
    • Handle: RePEc:bla:jbfnac:v:33:y:2006:i:5-6:p:653-670
    DOI: 10.1111/j.1468-5957.2006.00017.x
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    References listed on IDEAS

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    Cited by:

    1. Vahid Biglari & Ervina Binti Alfan & Rubi Binti Ahmad & Najmeh Hajian, 2013. "The Ability of Analysts' Recommendations to Predict Optimistic and Pessimistic Forecasts," PLOS ONE, Public Library of Science, vol. 8(10), pages 1-10, October.
    2. Salma S. Ibrahim, 2009. "The Usefulness of Measures of Consistency of Discretionary Components of Accruals in the Detection of Earnings Management," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(9‐10), pages 1087-1116, November.
    3. Katsuo, Yuko, 2008. "Earnings quality, accruals and subjective goodwill accounting," LSE Research Online Documents on Economics 6912, London School of Economics and Political Science, LSE Library.
    4. Robert E. Houmes & Terrance R. Skantz, 2010. "Highly Valued Equity and Discretionary Accruals," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(1-2), pages 60-92.
    5. Vladu Alina Beattrice & Cuzdriorean Dan Dacian, 2011. "Detection Of Earnings Management - A Proposed Framework Based On Accruals Approach Research Designs," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 643-648, December.
    6. Robert E. Houmes & Terrance R. Skantz, 2010. "Highly Valued Equity and Discretionary Accruals," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(1‐2), pages 60-92, January.
    7. Omid Mehri Namakavarani & Abbas Ali Daryaei & Davood Askarany & Saeed Askary, 2021. "Audit Committee Characteristics and Quality of Financial Information: The Role of the Internal Information Environment and Political Connections," JRFM, MDPI, vol. 14(6), pages 1-18, June.

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