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The Sale of Assets to Manage Earnings in Japan

37 Pages Posted: 17 Oct 2001  

Don Herrmann

Oklahoma State University - Stillwater - School of Accounting

Wayne B. Thomas

University of Oklahoma - Michael F. Price College of Business

Tatsuo Inoue

Kwansei Gakuin University - Business School

Multiple version iconThere are 2 versions of this paper

Date Written: April 2001

Abstract

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.

Keywords: Asset sales; Earnings management; Management forecasts; Historical cost

JEL Classification: M41, M43

Suggested Citation

Herrmann, Don and Thomas, Wayne B. and Inoue, Tatsuo, The Sale of Assets to Manage Earnings in Japan (April 2001). Available at SSRN: https://ssrn.com/abstract=287054 or http://dx.doi.org/10.2139/ssrn.287054

Don Herrmann (Contact Author)

Oklahoma State University - Stillwater - School of Accounting ( email )

College of Business Administration
345 Business Building
Stillwater, OK 74078
United States

Wayne B. Thomas

University of Oklahoma - Michael F. Price College of Business ( email )

Michael F. Price College of Business,
307 W Brooks, Rm 212B
Norman, OK 73019
United States
405-325-5789 (Phone)
405-325-7348 (Fax)

Tatsuo Inoue

Kwansei Gakuin University - Business School ( email )

Department of Accounting
Nishinomiya
Japan

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