Among the many beneficiaries of well
managed earnings are income to fund the establishment of national child development centers.
Even if the larger
managed earnings signal the firm's attractive investment opportunities (Linck et ah, 2013), creditors are less likely than stockholders to benefit from them as their payments are fixed and the new investment returns are uncertain.
For instance, highly
managed earnings can yield low-quality earnings (Lo, 2008, pp.121-151), as the "artificial" information may lead to an incorrect decision.
They found that small companies
managed earnings to avoid losses more frequently than large companies (Lee & Choi, 2002).
Sloan (1996), in the naive investor model, suggests "that investors 'fixate' on earnings, failing to distinguish fully between the different properties of the accrual and cash flow components of earnings." This view predicts that investors respond to the
managed earnings, which contains abnormal accruals, as if this level of earnings would persist in the future.
This is based on the tailwinds of
managed earnings and a US Fed that is reluctant to end the easy money despite the obvious need to do so.
We find that firms who
managed earnings before the adverse event had less negative reaction to the adverse event than those who did not.
H1: Unregulated companies
managed earnings and net assets to appear to be a more favorable investment.
In addition, many contracting incentives are tied directly or indirectly to earnings based measures which also provide strong incentives for
managed earnings.
If earnings are managed through Sales Revenues, then the Jones Model will remove part of the
managed earnings from the discretionary accruals.
Only 1,259 (43%) of 2,931 firms
managed earnings by choosing income decreasing reserve account changes.
