The Sale of Assets to Manage Earnings in Japan
Posted: 29 Jan 2003
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 earnings. We find a negative relation between income from asset sales and management forecast error. When current reported operating income is below (above) management's forecast of operating income, firms increase (decrease) earnings through the sale of fixed assets and marketable securities. The results hold after controlling for expected future performance, debt to equity ratio, size, growth, and last year's income from asset sales.
Keywords: Asset sales, Earnings management, Management forecasts, Historical cost
JEL Classification: M41, M43
Suggested Citation: Suggested Citation