Asdf Essay example

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ARTICLE IN PRESS
Journal of Accounting and Economics 50 (2010) 2–19

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Journal of Accounting and Economics journal homepage: www.elsevier.com/locate/jae

Accrual-based and real earnings management activities around seasoned equity offerings
Daniel A. Cohen 1, Paul Zarowin Ã
New York University, Stern School of Business, NY 10012-1118, USA

a r t i c l e i n f o

abstract

Article history:
Received 15 January 2008
Received in revised form
22 December 2009
Accepted 18 January 2010
Available online 2 February 2010

We show that SEO firms engage in real activities manipulation, and the decline in postSEO performance due to the real activities management is more severe than that
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The distinction is important, because while accrual-based earnings management activities have no direct cash flow consequences, real activities manipulations affect cash flows. We refer to real activities manipulation as actions managers take that deviate from normal business practices.2
We contribute to the literature by showing that SEO firms engage in real activities manipulation in the year of the SEO, and the decline in post-SEO performance due to the real activities management is more severe than that due to accrual

à Corresponding author. Tel.: þ212 998 0015.

E-mail addresses: dcohen@stern.nyu.edu (D.A. Cohen), pzarowin@stern.nyu.edu (P. Zarowin).
Tel.: þ212 998 0267.
2
This definition is consistent with Roychowdhury (2006) who defines real activities manipulations as ‘‘ymanagement actions that deviate from normal business practices, undertaken with the primary objective of meeting certain earnings thresholds.’’
1

0165-4101/$ - see front matter & 2010 Elsevier B.V. All rights reserved. doi:10.1016/j.jacceco.2010.01.002 ARTICLE IN PRESS
D.A. Cohen, P. Zarowin / Journal of Accounting and Economics 50 (2010) 2–19

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management. Our evidence is important, because it shows that previously documented post-SEO operating underperformance is driven not just by accrual reversals, but also reflects the real consequences of operational decisions made to manage earnings at the time of the

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