The Sale of Assets to Manage Earnings in Japan

Posted: 29 Jan 2003

See all articles by Don Herrmann

Don Herrmann

Oklahoma State University - Stillwater - School of Accounting

Wayne B. Thomas

University of Oklahoma

Tatsuo Inoue

Kwansei Gakuin University - Business School

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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 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

Herrmann, Don and Thomas, Wayne B. and Inoue, Tatsuo, The Sale of Assets to Manage Earnings in Japan. Available at SSRN: https://ssrn.com/abstract=359520

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 ( 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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