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 journalJournal articlepeer-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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