Did Firms Manage Earnings More Aggressively During the Financial Crisis?

18 Pages Posted: 17 Sep 2018

See all articles by Pandej Chintrakarn

Pandej Chintrakarn

Mahidol University International College (MUIC)

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Young S. Kim

Eastern Michigan University

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2018

Abstract

We investigate the extent of earnings management during the financial crisis of 2008 (The Great Recession). Based on a large sample of 14,000 observations across 15 years, our results show that firms managed earnings less aggressively during the crisis. We also show a severe decline in firm value and profitability during the crisis. Our results are consistent with the notion that, during the crisis, firm performance was so far below the target that no amount of earnings management would have been sufficient to reverse the poor earnings picture. As a result, managers were less motivated to manage earnings. Furthermore, the crisis serves as a convenient excuse for poor performance, lessening the motivation and necessity for managers to manage earnings. Additional analysis including fixed‐effects regressions, propensity score matching, and GMM dynamic panel data estimation shows that our results are robust and are not driven by unobserved heterogeneity. Further analysis documents similar findings for the Dot‐com crisis in 2001 and the Asian Financial Crisis in 1997–1998.

Suggested Citation

Chintrakarn, Pandej and Jiraporn, Pornsit and Kim, Young S., Did Firms Manage Earnings More Aggressively During the Financial Crisis? (September 1, 2018). International Review of Finance, Vol. 18, Issue 3, pp. 477-494, 2018. Available at SSRN: https://ssrn.com/abstract=3244739 or http://dx.doi.org/10.1111/irfi.12135

Pandej Chintrakarn (Contact Author)

Mahidol University International College (MUIC) ( email )

999 Buddhamonthon 4 Road
Salaya, Nakhonpathom, 73170
Thailand

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Young S. Kim

Eastern Michigan University ( email )

Eastern Michigan University
Ypsilanti, MI 48197
United States

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