Earnings management and accrual anomaly across market states and business cycles

Samuel Y M ZE-TO*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)

Abstract

This paper examines if the conditioning on market states is important to earnings management behaviors and profitability of accrual hedge strategy. This paper discusses four findings. First, accrual profits are consistently positive across both market states and significantly higher in DOWN markets. Second, while earnings management exists in both market states, the management effort is less effective and short-lived in the DOWN state. Third, this paper finds that the accrual effect exists but varies across industries. Finally, this paper examines how business cycles associate with accrual anomaly and show that accruals mispricing cannot be fully captured by macroeconomic model predicted returns.

Original languageEnglish
Pages (from-to)344-352
Number of pages9
JournalAdvances in Accounting
Volume28
Issue number2
DOIs
Publication statusPublished - Dec 2012

Scopus Subject Areas

  • Accounting
  • Finance

User-Defined Keywords

  • Accrual anomaly
  • Earnings management
  • Market state

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