Earnings Management Relations of Accruals Components: A Multi-Period Setting

50 Pages Posted: 7 Dec 2003

See all articles by Ervin L. Black

Ervin L. Black

Steed School of Accounting

Brian W. McCulloch

New Zealand Treasury

Date Written: December 4, 2003


A dynamic steady-state model of financial reporting subject to ongoing earnings management strategies is presented. We show that, even in the absence of researcher measurement error, discretionary accruals and non-discretionary accruals are always negatively correlated. The negative correlation becomes weaker (less negative) as earnings persistence increases and, counter-intuitively, as the ability to engage in earnings management increases. Our theoretical results provide building blocks for improving the technology for empirical investigation, which we employ to provide an empirical estimation technique to improve the technology for investigating earnings management using discretionary accruals. We find empirical evidence of strategic multi-period earnings management, in general. And, our accruals model compares favorably against other models.

Keywords: discretionary accruals, earnings management, multi-period setting

JEL Classification: M41, M43

Suggested Citation

Black, Ervin L. and McCulloch, Brian W., Earnings Management Relations of Accruals Components: A Multi-Period Setting (December 4, 2003). Available at SSRN: https://ssrn.com/abstract=476164 or http://dx.doi.org/10.2139/ssrn.476164

Ervin L. Black (Contact Author)

Steed School of Accounting ( email )

307 W Brooks
Norman, OK 73019
United States
405-325-2401 (Phone)

Brian W. McCulloch

New Zealand Treasury ( email )

1 The Terrace
P.O. Box 3724
Wellington, 6011
New Zealand
+64 4 9176077 (Phone)
+64 4 4990437 (Fax)

HOME PAGE: http://www.mcculloch.org.nz

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