The Sale of Assets to Manage Earnings in Japan
Oklahoma State University - Stillwater - School of Accounting
Wayne B. Thomas
University of Oklahoma - Michael F. Price College of Business
Kwansei Gakuin University - Business School
This paper investigates Japanese managers' use of income from the sale of fixed assets and marketable securities to manage earnings. The earnings management target examined in the paper is Japanese managers forecasts of current year and year-ahead earnings. Firms with current performance below (above) previous management forecasts are expected to manage earnings upward (downward) by reporting higher (lower) income from asset sales. In relation to future performance, firms with management forecasts of future periods below (above) current performance are more likely to save (recognize) unrealized holding income on historical cost assets. The results support these expectations. Japanese managers consider both current and future income effects in the recognition of income from asset sales.
Number of Pages in PDF File: 37
Keywords: Asset sales; Earnings management; Management forecasts; Historical cost
JEL Classification: M41, M43
Date posted: October 17, 2001
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