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http://ssrn.com/abstract=1280711
 
 

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Real and Accrual-Based Earnings Management in the Pre- and Post-Sarbanes Oxley Periods


Daniel A. Cohen


University of Texas at Dallas - Naveen Jindal School of Management

Aiyesha Dey


University of Minnesota - Carlson School of Management

Thomas Z. Lys


Northwestern University - Kellogg School of Management

January 2004

NYU Working Paper No. 2451/27548

Abstract:     
We document that accrual-based earnings management increased steadily from 1987 untilthe passage of the Sarbanes Oxley Act (SOX) in 2002, followed by a significant declineafter the passage of SOX. Conversely, the level of real earnings management activitiesdeclined prior to SOX and increased significantly after the passage of SOX, suggesting that firms switched from accrual-based to real earnings management methods after the passage of SOX. We also find evidence that the accrual-based earnings management activities were particularly high in the period immediately preceding SOX. Consistent with these results, we find that firms that just achieved important earnings benchmarks used less accruals and more real earnings management after SOX when compared to similar firms before SOX. Finally, our analysis provides evidence that the increases in accrual-based earnings management in the period preceding SOX were concurrent withincreases in the fraction of equity based compensation.

Number of Pages in PDF File: 52

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Date posted: October 8, 2008  

Suggested Citation

Cohen, Daniel A. and Dey, Aiyesha and Lys, Thomas Z., Real and Accrual-Based Earnings Management in the Pre- and Post-Sarbanes Oxley Periods (January 2004). NYU Working Paper No. DANIEL A. COHEN-04. Available at SSRN: http://ssrn.com/abstract=1280711

Contact Information

Daniel A. Cohen (Contact Author)
University of Texas at Dallas - Naveen Jindal School of Management ( email )
P.O. Box 830688
Richardson, TX 75083-0688
United States
972-883-4772 (Phone)
972-883-6811 (Fax)
Aiyesha Dey
University of Minnesota - Carlson School of Management ( email )
321 Nineteenth Avenue South
Minneapolis, MN 55455
United States
6126268626 (Phone)
Thomas Z. Lys
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Department of Accounting & Information Systems
Evanston, IL 60208
United States
847-491-2673 (Phone)
847-467-1202 (Fax)
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