Earnings Management Using Discontinued Operations

43 Pages Posted: 27 Aug 2008 Last revised: 12 Jun 2012

See all articles by Abhijit Barua

Abhijit Barua

Florida International University - School of Accounting

Steve W. J. Lin

Florida International University (FIU) - School of Accounting

Andrew M. Sbaraglia

Florida International University

Date Written: November 23, 2009

Abstract

This paper investigates whether managers use classification shifting to manage earnings when reporting discontinued operations. Using a methodology similar to McVay (2006), we find evidence consistent with our hypothesis that firms shift operating expenses to income-decreasing discontinued operations to increase core earnings. Our findings also indicate that managers use classification shifting to meet or beat analysts’ forecasts. Finally, we find that since the introduction of SFAS 144, the reporting frequency of discontinued operations has increased; however, the magnitude of classification shifting has decreased. We provide potential explanations for this finding.

Keywords: Classification shiftin, discontinued operatons

Suggested Citation

Barua, Abhijit and Lin, Steve W. J. and Sbaraglia, Andrew M., Earnings Management Using Discontinued Operations (November 23, 2009). Available at SSRN: https://ssrn.com/abstract=1245863 or http://dx.doi.org/10.2139/ssrn.1245863

Abhijit Barua

Florida International University - School of Accounting ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States
305-3483404 (Phone)

Steve W. J. Lin (Contact Author)

Florida International University (FIU) - School of Accounting ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Andrew M. Sbaraglia

Florida International University ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

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