This study examines earnings management activities to achieve industry-average profitability in Japanese firms. I focus on Japanese firms because they tend to be preoccupied with the activities and ...profitability of industry competitors. I find that firms just meeting or slightly beating industry-average profitability (JUSTMEET_PEER firms) are positively related to real and accrual-based earnings management. I also find that the positive relationship between JUSTMEET_PEER firms and real earnings management is stronger when the JUSTMEET_PEER firms operate in more competitive industries. Finally, similar evidence is found for firms that just meet and slightly beat industry-average forecast profitability. These findings suggest that Japanese firms tend to regard industry-average profitability as an important benchmark and are likely to engage in earnings management to achieve the benchmark.
•Earnings management is affected by investor protection in each country.•Accrual-based earnings management decreases under stronger investor protection.•Real earnings management increases under ...stronger investor protection.•Real earnings management decreases with analyst following.
This paper examines the differences in accrual-based and real earnings management across countries from the perspective of investor protection. Following prior research (Leuz et al., 2003), we hypothesize that accrual-based earnings management is more constrained by strict discipline in countries with stronger investor protection. For real earnings management in countries with stronger investor protection, we have two hypotheses. One is that real earnings management is more often implemented to substitute for accrual-based earnings management. The other is that real earnings management is less often implemented, as with accrual-based earnings management. Our examination uses data from 222,513 firm-year observations drawn from 38 countries covering 1991 to 2010. The results show that managers in countries with stronger investor protection tend to engage in real earnings management instead of accrual-based earnings management. We also find that real earnings management is constrained by analyst following. Our results are not affected by the control of audit quality or the calculation method used for earnings management measures according to country and year.
•Mandatory quarterly reporting is associated with an increase in managerial myopic behavior, proxied by real earnings management.•The positive association between mandatory quarterly reporting and ...managerial myopic behavior is stronger for firms with higher foreign ownership.•The findings suggest that mandatory quarterly reporting encourages managerial myopic behavior, especially when market pressure is stronger.•While quarterly reporting is expected to provide timely information to investors, our findings imply that it may lead to unintended consequences of inducing managerial myopic behavior.
While quarterly reporting can provide timely information to investors and mitigate information asymmetry between managers and investors, it may also generate managerial myopic behavior. This study examines whether mandatory quarterly reporting induces managerial myopic behavior in Japanese firms. Using a difference-in-differences approach, we find that mandatory quarterly reporting is associated with an increase in managerial myopic behavior, proxied by real earnings management. We also find that this association is stronger for firms with higher foreign ownership. Our findings suggest that mandatory quarterly reporting encourages managerial myopic behavior, especially when market pressure is stronger.
Prior research finds that the Sarbanes-Oxley Act (US-SOX) of 2002has affected earnings management in the United States. Cohen et al. (2008) indicate that accrual-based earnings management has ...declined since the passage of US-SOX, while real earnings management has increased. Further, Gilliam et al. (2015) show that the zero-earnings discontinuity has disappeared since its passage, indicating that earnings management to avoid losses has decreased as a result. In Japan, the Financial Instruments and Exchange Act of 2006, the so-called Japanese version of SOX (J-SOX), was implemented for fiscal years starting in April 2008. Similar to US-SOX, J-SOX aims to reinforce the corporate governance of financial reporting. This study investigates whether the discontinuity in the distributions of earnings and earnings changes disappeared after J-SOX implementation. In contrast to US-SOX, the results indicate that the discontinuity in the earnings distribution at zero did not disappear after J-SOX implementation. However, the discontinuity in the earnings change distribution at zero almost disappeared after J-SOX implementation, indicating that earnings management to avoid earnings decreases became less prevalent. In addition, the results indicate that the discontinuity in the distribution of earnings changes before J-SOX implementation was mainly caused by habitual beaters and that earnings management by habitual beaters to avoid earnings decreases was less prevalent after J-SOX implementation.
This study investigates whether a country's level of financial development is associated with earnings management in an international setting. Financial development is likely to heighten the ...monitoring and scrutiny of accounting numbers because of strengthened investor protection laws and regulations as well as sophisticated market participants. Therefore, we first hypothesize that both accrual‐based and real earnings management decrease with greater financial development. However, research shows that managers tend to apply real earnings management, instead of accrual‐based earnings management, under strict accounting standards, regulations, and close auditor scrutiny. Thus, we explore the alternative hypothesis that accrual‐based earnings management decreases but real earnings management increases along with higher financial development. We examine the relationship between financial development and both types of earnings management using 56,830 observations in 37 countries covering the period 2009–2012. The results indicate that both types of earnings management are more restrained under higher levels of financial development.
This paper investigates whether manager’s opportunistic earnings-increased real discretion negatively affects firm’s future operating performance. I analyze three types of earningsincreased real ...discretion, that is, sales manipulation through price discounts, reduction of discretionary expenses such as research and development expenses, and overproduction to report lower cost of goods sold. And, I try to specify opportunistic part from earnings-increased real discretion. Then, I take account of two circumstances. One is a low capability to increase accruals, and the other is a meeting or beating earnings benchmarks. I define opportunistic choice as earnings-increased real discretion with such circumstances. The results indicate that opportunistic real discretion has a significant negative influence on future operating performance （ROA）.
Magnesium and its alloys are well-known as the lightest metallic structure material with excellent castability and specific strength. Those good mechanical properties are very attractive for ...industrial applications in automobile and portable electronic devices. Above all, AM60 magnesium alloy is manufactured from the pressure die casting process with chiefly high accuracy and productivity, but actual use and research using gravity casting with lower cooling rate is less than the die casting method, and there are a multitude of unknown things regarding solidification behavior and microstructure evolution. Our recent studies showed that continuous precipitation is covered by the whole of crystal grain with aging in AM60 magnesium alloy cast into permanent molds, which have the average grain size of 75–85 μm. On the other hand, continuous precipitation stays on the periphery of the crystal grain boundary with aging in the same cast into a sand mold, having the average grain size of 138–147 μm. It's thought that permanent mold castings have the age hardening behavior of intragranular precipitation participation type that is influenced by continuous precipitates. It's also thought that sand mold castings have the age hardening behavior of grain boundary participation type that is influenced by cellular precipitates. In this study, AM60 magnesium alloy with bigger grain size was used to detect the effect of grain size on age hardening behavior.
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