Effects of Real Earnings Management: Evidence from Patents

Advances in Quantitative Analysis of Finance and Accounting, Forthcoming

Posted: 3 Aug 2017

See all articles by Qin Lian

Qin Lian

Portland State University

Qiming Wang

Willamette University - Atkinson Graduate School of Management

Zhaohui Randall Xu

University of Houston, Clear Lake

Date Written: July 31, 2017

Abstract

We examine the effect of R&D REM, a form of real earnings management (REM) by cutting research and development (R&D) expenditures abnormally to meet earnings targets, on firms’ subsequent innovation productivity measured by the scale and the novelty of patents. In the within-firm analysis, we find that R&D REM adversely affects the number of innovations, technological importance, and novelty of innovation in the subsequent periods. In the cross-sectional analysis, after controlling for other related factors, we find that, relative to the matched sample firms that likely cut R&D expenditures for reasons other than manipulating earnings, R&D REM firms produce fewer innovations with significantly less novelty.

Suggested Citation

Lian, Qin and Wang, Qiming and Xu, Zhaohui Randall, Effects of Real Earnings Management: Evidence from Patents (July 31, 2017). Advances in Quantitative Analysis of Finance and Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3011581

Qin Lian (Contact Author)

Portland State University ( email )

United States
5037253728 (Phone)

Qiming Wang

Willamette University - Atkinson Graduate School of Management ( email )

900 State Street
Salem, OR 97301
United States

Zhaohui Randall Xu

University of Houston, Clear Lake ( email )

2700 bay area blvd,
box 42
Houston, TX 77058
United States
281-283-3145 (Phone)

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