Accounting Accruals and Tests of Earnings Management

45 Pages Posted: 26 Jul 2007  

Jianming Ye

City University of New York - Baruch College - Stan Ross Department of Accountancy

Date Written: July 26, 2007

Abstract

The success of the Jones model has inspired a long line of research on learnings management that utilizes it. In this paper, I augment the Jones and performance-adjusted Jones models by incorporating three measures from financial statements: abnormal beginning non-cash working capital, working capital intensity, and historical depreciation rates. In a number of scenarios including loss avoidance and seasoned equity offerings, I show that unexpected accruals based on the proposed model evince less bias and higher power in testing earnings management compared to those based on the existing models. The proposed accruals model displays the advantages of both the cross-sectional and the time-series Jones models, but overcomes their shortcomings.

Keywords: Earnings Management, Accounting Accruals

JEL Classification: M41, M43, G12, C52

Suggested Citation

Ye, Jianming, Accounting Accruals and Tests of Earnings Management (July 26, 2007). Available at SSRN: https://ssrn.com/abstract=1003101 or http://dx.doi.org/10.2139/ssrn.1003101

Jianming Ye (Contact Author)

City University of New York - Baruch College - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

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