The Effect of Earnings Management on the Value Relevance of Accounting Information

36 Pages Posted: 2 Jul 2004

See all articles by Christine I. Wiedman

Christine I. Wiedman

University of Waterloo

Carol A. Marquardt

City University of New York (CUNY) – Baruch College

Abstract

This study investigates whether opportunistic earnings management affects the value relevance of net income and book value in determining stock price. We document a decrease in the value relevance of earnings in the year of an equity offering for a group of firms with ex post evidence of earnings management. This decrease is greater for the discretionary component of earnings than for the nondiscretionary component. These results are robust to model specification and the type of offering. However, the results are sensitive to firms' disclosure activity prior to the offering.

JEL Classification: M41, M43, G12, G24

Suggested Citation

Wiedman, Christine I. and Marquardt, Carol, The Effect of Earnings Management on the Value Relevance of Accounting Information. Journal of Business Finance & Accounting, Vol. 31, No. 3-4, pp. 297-332, April 2004. Available at SSRN: https://ssrn.com/abstract=553241

Carol Marquardt (Contact Author)

City University of New York (CUNY) – Baruch College ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3241 (Phone)

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