TY - JOUR
T1 - Real earnings management, institutional environment, and future operating performance
T2 - An international study
AU - Jiang, Haiyan
AU - Habib, Ahsan
AU - Wang, Snow
PY - 2018/3/1
Y1 - 2018/3/1
N2 - This paper investigates the association between firms' engagement in real activities manipulation (hereafter REM) on future firm performance in an international setting, and whether the association is conditional upon country-level institutional factor. Our inquiry is motivated by a paucity of research on the consequences of REM in an international setting. Using a large sample over the period of 2001 to 2015, we find that current-period REM is positively associated with future performance: a finding that is consistent with Gunny (2010) in the US. Importantly, we find that the positive performance effect is driven by firms operating in countries with strong institutional environments. Finally, we find that future operating performance improves when REM is undertaken by firms in strong institutional environments only during a non-economic crisis period, but not during an economic crisis period. The paper adds to the existing REM literature by showing a non-monotonic effect of REM on future performance that is conditional on the strength of a country's institution. We also contribute to the accounting information and crisis literature by documenting a time-variant effect of REM on future performance.
AB - This paper investigates the association between firms' engagement in real activities manipulation (hereafter REM) on future firm performance in an international setting, and whether the association is conditional upon country-level institutional factor. Our inquiry is motivated by a paucity of research on the consequences of REM in an international setting. Using a large sample over the period of 2001 to 2015, we find that current-period REM is positively associated with future performance: a finding that is consistent with Gunny (2010) in the US. Importantly, we find that the positive performance effect is driven by firms operating in countries with strong institutional environments. Finally, we find that future operating performance improves when REM is undertaken by firms in strong institutional environments only during a non-economic crisis period, but not during an economic crisis period. The paper adds to the existing REM literature by showing a non-monotonic effect of REM on future performance that is conditional on the strength of a country's institution. We also contribute to the accounting information and crisis literature by documenting a time-variant effect of REM on future performance.
KW - Firm performance
KW - Institutional environment
KW - Real earnings management
UR - http://www.scopus.com/inward/record.url?scp=85042872711&partnerID=8YFLogxK
U2 - 10.1016/j.intacc.2018.02.004
DO - 10.1016/j.intacc.2018.02.004
M3 - Article
AN - SCOPUS:85042872711
SN - 1094-4060
VL - 53
SP - 33
EP - 53
JO - The International Journal of Accounting
JF - The International Journal of Accounting
IS - 1
ER -