Department of Finance and Decision Sciences
Earnings management and accrual anomaly across market states and business cycles
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.
Accrual anomaly, Earnings management, Market state
Source Publication Title
Advances in Accounting
Link to Publisher's Edition
Ze-To, S. (2012). Earnings management and accrual anomaly across market states and business cycles. Advances in Accounting, 28 (2), 344-352. https://doi.org/10.1016/j.adiac.2012.09.011