TY - JOUR
T1 - Is earnings management opportunistic or beneficial? An agency theory perspective
AU - Jiraporn, Pornsit
AU - Miller, Gary A.
AU - Yoon, Soon Suk
AU - Kim, Young S.
PY - 2008/6
Y1 - 2008/6
N2 - Earnings management has been cast into negative light due to the recent corporate scandals and, therefore, is viewed as detrimental to the firm. Enron and Worldcom represent two of the most egregious cases of opportunistic earnings management that led to the largest bankruptcies in U.S. history. However, some argue that earnings management may be beneficial because it improves the information value of earnings by conveying private information to the stockholders and the public. We offer agency theory as a tool to distinguish between the opportunistic and beneficial uses of earnings management. The empirical evidence suggests that firms where earnings management occurs to a larger (less) extent suffer less (more) agency costs. Moreover, a positive relation is documented between firm value and the extent of earnings management. Taken together, the results reveal that earnings management is, on average, not detrimental.
AB - Earnings management has been cast into negative light due to the recent corporate scandals and, therefore, is viewed as detrimental to the firm. Enron and Worldcom represent two of the most egregious cases of opportunistic earnings management that led to the largest bankruptcies in U.S. history. However, some argue that earnings management may be beneficial because it improves the information value of earnings by conveying private information to the stockholders and the public. We offer agency theory as a tool to distinguish between the opportunistic and beneficial uses of earnings management. The empirical evidence suggests that firms where earnings management occurs to a larger (less) extent suffer less (more) agency costs. Moreover, a positive relation is documented between firm value and the extent of earnings management. Taken together, the results reveal that earnings management is, on average, not detrimental.
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U2 - 10.1016/j.irfa.2006.10.005
DO - 10.1016/j.irfa.2006.10.005
M3 - Article
AN - SCOPUS:44349149875
VL - 17
SP - 622
EP - 634
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
SN - 1057-5219
IS - 3
ER -