A General Differences-in-Differences Research Design for Evaluating Firms Deviations from Expectations

45 Pages Posted: 20 Jun 2011 Last revised: 11 Apr 2021

See all articles by David G. Harris

David G. Harris

Syracuse University - Joseph I. Lubin School of Accounting

Linna Shi

University of Cincinnati - Lindner College of Business

Date Written: january 1, 2012

Abstract

In this paper we set forth a robust and generalized research design for investigating potential EM and other firm behaviors hypothesized to deviate from some expected value. The design is robust in that it relies only on conservative rank-based variables and utilizes binomial test statistics, in addition to a bootstrap. Multiple regressions are proposed that rely only on indicator variables which are more conservative and robust than continuous-variables’ correlations. It is generalized in that it can capture hypothesized EM of many types, including positive, negative, large and small deviations. This design has wide potential application in that it can be applied in many accounting and finance research settings where firms’ deviations from expectations can be estimated in that it suggests how such deviations can be robustly associated with other factors of interest, such as firms’ performance, or management compensation, as well as managing reported financial income.

Keywords: statistics, earnings management

JEL Classification: G31, M40, M41

Suggested Citation

Harris, David G. and Shi, Linna, A General Differences-in-Differences Research Design for Evaluating Firms Deviations from Expectations (january 1, 2012). Available at SSRN: https://ssrn.com/abstract=1866354 or http://dx.doi.org/10.2139/ssrn.1866354

David G. Harris (Contact Author)

Syracuse University - Joseph I. Lubin School of Accounting ( email )

Whitman School of Management
721 University Ave
Syracuse, NY 13244-2130
United States
315-443-3362 (Phone)
315-443-5457 (Fax)

Linna Shi

University of Cincinnati - Lindner College of Business ( email )

P.O. Box 210211
Cincinnati, OH 45221-0211
United States
(513) 556-2097 (Phone)

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