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Influence of geographic distribution on real activities manipulation within consolidated companies: Evidence from Japan

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  • Yamada, Akihiro
  • Sakurai, Yuuta
  • Ishida, Ryo

Abstract

With the globalization of companies, distances between parent companies and their subsidiaries have increased and the locations of subsidiaries have become more diversified. These changes have had various effects on corporate real activities, depending on information asymmetry, transport costs, and the economic environment. We investigate the impact of the geographic distribution of companies on real activities manipulation (RM) within Japanese companies. The results show that (1) as the distance between a parent company and its subsidiaries increases, the subsidiaries’ RM decreases; (2) as the proportion of subsidiaries in Organisation for Economic Cooperation and Development countries increases, the subsidiaries’ RM decreases; and (3) part of the subsidiaries’ RM reduced by geographic distribution is replaced by the parent company’s RM. Additional tests comparing RM with accrual-based manipulation (AM) show that subsidiaries’ AM increases with the distance from the parent company. This result suggests that the parent–subsidiary distance and locations of subsidiaries influence accounting information.

Suggested Citation

  • Yamada, Akihiro & Sakurai, Yuuta & Ishida, Ryo, 2020. "Influence of geographic distribution on real activities manipulation within consolidated companies: Evidence from Japan," Research in International Business and Finance, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:riibaf:v:54:y:2020:i:c:s0275531919312334
    DOI: 10.1016/j.ribaf.2020.101306
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    More about this item

    Keywords

    Geographic distribution; Earnings management; Real activities manipulation; Accruals; Consolidated financial statements; Japan;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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