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Is earnings management sensitive to discount rates?

aHanken School of Economics, P.O. Box 287, 65101 Vasa, Finland
bHanken School of Economics, P.O. Box 479, 00101 Helsinki, Finland
cUniversity of New South Wales, UNSW Sydney NSW 2052, Australia

Journal of Accounting Literature

ISSN: 0737-4607

Article publication date: 16 March 2018

Issue publication date: 31 December 2018



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.



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.



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