Information Asymmetry and Earnings Management: Some Evidence
40 Pages Posted: 5 May 1998
Date Written: January 1998
Abstract
This paper conducts an empirical investigation of the relationship between information asymmetry and earnings management predicted by Dye (1988) and Trueman and Titman (1988). When information asymmetry is high, stakeholders do not have sufficient resources, incentives, or access to relevant information to monitor manager's actions, which gives rise to the practice of earnings management (Schipper (1989) and Warfield et al. (1995)). Empirical results suggest a systematic relationship between the magnitude of information asymmetry as measured by bid-ask spreads and analyst forecast dispersion and the level of earnings management in both a broad sample setting and in a time-specific setting around seasoned equity offerings.
JEL Classification: M41, M43, G12
Suggested Citation: Suggested Citation
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