Information Asymmetry and Earnings Management: Some Evidence

40 Pages Posted: 5 May 1998

See all articles by Vernon J. Richardson

Vernon J. Richardson

University of Arkansas at Fayetteville

Date Written: January 1998

Abstract

This paper conducts an empirical investigation of the relationship between information asymmetry and earnings management predicted by Dye (1988) and Trueman and Titman (1988). When information asymmetry is high, stakeholders do not have sufficient resources, incentives, or access to relevant information to monitor manager's actions, which gives rise to the practice of earnings management (Schipper (1989) and Warfield et al. (1995)). Empirical results suggest a systematic relationship between the magnitude of information asymmetry as measured by bid-ask spreads and analyst forecast dispersion and the level of earnings management in both a broad sample setting and in a time-specific setting around seasoned equity offerings.

JEL Classification: M41, M43, G12

Suggested Citation

Richardson, Vernon J., Information Asymmetry and Earnings Management: Some Evidence (January 1998). Available at SSRN: https://ssrn.com/abstract=83868 or http://dx.doi.org/10.2139/ssrn.83868

Vernon J. Richardson (Contact Author)

University of Arkansas at Fayetteville ( email )

401 WCOB
Fayetteville, AR 72701
United States

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