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Document Type

Journal Article

Department/Unit

Department of Finance & Decision Sciences

Title

Earnings management and accrual anomaly across market states and business cycles

Language

English

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. © 2012 Elsevier Ltd.

Keywords

Accrual anomaly, Earnings management, Market state

Publication Date

2012

Source Publication Title

Advances in Accounting

Volume

28

Issue

2

Start Page

344

End Page

352

Publisher

Elsevier

ISSN (print)

08826110

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