Is earnings management sensitive to discount rates?
Journal of Accounting Literature
ISSN: 0737-4607
Article publication date: 16 March 2018
Issue publication date: 31 December 2018
Abstract
We argue that managers’ choice to manage earnings depends on the trade-off in the present value of expected future net benefits associated with that choice. Specifically, we examine if discount rates are associated with the likelihood that managers engage in earnings management to meet or beat various earnings targets. We find that discount rates are positively associated with income-increasing earnings management. This means that managers increase both accrual-based and real earnings management when discount rates are higher. However, the economic magnitude of this association is relatively moderate.
Keywords
Citation
Haga, J., Ittonen, K., Tronnes, P.C. and Wong, L. (2018), "Is earnings management sensitive to discount rates?", Journal of Accounting Literature, Vol. 41 No. 1, pp. 75-88. https://doi.org/10.1016/j.acclit.2018.03.001
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited