||Earnings management and stock returns: A quantile regression approach
||Graduate Institute of Finance
modified Jones model
modified Jones model
This paper examines whether earnings management affects stock market pricing and whether the influences are consistent between firms having different stock returns using a quantile regression approach. The quantile regression approach allows the estimate of the independent variable (unsigned discretionary accruals) to shift across the distribution of the dependent variable (stock return) rather than a single estimator of central tendency. Our sample consists of 2,290 non-financial firms and 20,350 firm-year observations during the period from 1992 to 2009. The empirical results indicate that earnings management is positively priced by stock market at higher return quantiles, but the association changes into a negative relation in the lower tail of the distribution of returns. This implies that the behavioral heterogeneity of market investors in stock markets is significant. Market investors will follow the financial information and current trends in stock prices for corporations having higher stock returns, so earnings management should be rewarded significantly on stock returns by the market. However, investors will be more concerned with real financial situations rather than earnings that are adjusted by managers in the case of firms having lower returns, so earnings management perhaps has no significant influence on returns or even may be penalized by investors in regard to stock returns.
摘 要 I
誌 謝 III
List of Tables VI
List of Figures VII
1. Introduction 1
2. Literature review 4
2.1. Studies on earnings management and market pricing 4
2.2. Measures of unsigned discretionary accruals and market pricing 6
2.3. Development of research questions 7
3. Data and methodology 10
3.1. Data 10
3.2. Quantile regression model 11
3.3. Measures of unsigned discretionary accruals and annual stock returns 12
3.4. Empirical model 14
4. Empirical results 15
4.1. Descriptive statistics 15
4.2. The quantile-varying relations between earnings management and stock return 15
4.3. The implications 17
4.4. The QR estimates of the control variables 18
5. Robustness tests 19
5.1. Model specification with year and industry 19
5.2. Alternative measure of market pricing 20
5.3. Alternative measure of unsigned discretionary accruals 22
5.4. Robustness test before and after Sarbanes-Oxley Act (SOX) 23
5.5. The issue of outliers and measurement errors in discretionary accruals estimation 24
5.6. The comparison between discretionary accruals are positive and negative 25
6. Conclusions 27
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