Research Outputs
Real activities manipulation and firm valuation
In this paper, we study the link between real earnings management and firm value. Consistent with prior studies, we expect the ability of a firm to generate future cash flows to be significantly impaired by its use of real activities manipulations. Using a cross-section of companies from the Standard & Poor’s Compustat database from 1990 to 2013, we find that firms with higher real earnings management are associated with lower industry-adjusted Tobin’s Q and firm-specific misvaluation measure. Our results are consistent under several regression techniques addressing potential endogeneity issues and alternative proxies for real earnings management after controlling for known factors to affect firm market values.
Real earnings management activities prior to bond issuance
We examine real activities manipulation by firms prior to their debt issuances and how such manipulation activities affect bond yield spreads. We find that bond-issuing firms increase their real activities manipulation in the five quarters leading to a bond issuance. We document an inverse association between yield spread and pre-issue real activities manipulation,i.e., firms engaged in abnormally high levels of real activities manipulation are associated with subsequent lower cost of debt.
Real earnings management and corporate governance: A study of Latin America
This article analyses the impact of ownership structure features and institutional settings on real activities manipulation. The analysis is based on a sample of listed companies in the underexplored Latin American market for the period of 2004–2016. Panel-data-based G.M.M. System Estimation is used in the empirical analysis. The results confirm that the monitoring role of the majority owner is crucial in mitigating managerial opportunistic behaviour. Here, opportunistic behaviour refers to engaging in real activities manipulation that reduces the informative content of financial statements. However, analysis of insider ownership revealed that managers had a negative impact on transparency. We observed that as insider ownership increases, managers engage more actively in real earnings management. We also find that the institutional ownership and the quality of the regulatory system proved to be effective mechanisms in reducing real activities manipulation.