Abstract

http://ssrn.com/abstract=1465029
 
 

References (27)



 
 

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Discontinuities and Earnings Management: Evidence from Restatements Related to Securities Litigation


Dain C. Donelson


University of Texas at Austin - McCombs School of Business

John M. McInnis


University of Texas at Austin - Department of Accounting

Richard Mergenthaler Jr.


University of Iowa - Henry B. Tippie College of Business

September 30, 2011

Contemporary Accounting Research, Forthcoming

Abstract:     
Numerous studies infer earnings management from discontinuities around earnings benchmarks despite no direct evidence of an association. This study provides direct evidence relating discontinuities to earnings management by comparing the distribution of restated earnings to originally-reported earnings among firms that settle accounting-related securities litigation and restate earnings from the alleged GAAP violation period. Discontinuities are not present in the distribution of analyst forecast errors, earnings changes, and earnings levels using restated earnings but are present using originally-reported earnings. These shifts are caused by earnings management and cannot be explained by differences in scaling, sample selection, or other research design issues.

Number of Pages in PDF File: 45

Keywords: Meet or Beat, Earnings Discontinuities, Earnings Management, Securities Litigation, Restatements

JEL Classification: M41

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Date posted: September 1, 2009 ; Last revised: September 30, 2011

Suggested Citation

Donelson, Dain C. and McInnis, John M. and Mergenthaler, Richard, Discontinuities and Earnings Management: Evidence from Restatements Related to Securities Litigation (September 30, 2011). Contemporary Accounting Research, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1465029 or http://dx.doi.org/10.2139/ssrn.1465029

Contact Information

Dain C. Donelson
University of Texas at Austin - McCombs School of Business ( email )
Austin, TX 78712
United States
512-232-3733 (Phone)
John M. McInnis (Contact Author)
University of Texas at Austin - Department of Accounting ( email )
Austin, TX 78712
United States
512-232-6791 (Phone)
Richard Dean Mergenthaler Jr.
University of Iowa - Henry B. Tippie College of Business ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0848 (Phone)
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