An Empirical Analysis of Earnings Management in Australia
This is a comprehensive large-sample study of Australian earnings management. Using a sample of 4,844 firm-year observations across nine Australia industries from 2000 to 2006, we find substantial corporate earnings management activity across several Australian industries. We document strong evidence of size and return on assets being primary determinants of earnings management in Australia. The effects of size and return on assets are also found to be dominant in both income-increasing and incomedecreasing earnings manipulation. We also document that that periphery sector firms are more likely to involve larger magnitude of earnings management than firms in the core sector.
[1] Abarbanell, J., & Levy, R., (2003) Can stock recommendations predict
earnings management and analyst' earnings forecast errors?, Journal of
Accounting Research, 41,1-31.
[2] Albrecht, W. D. & Richardson, F. M. (1990) Income smoothing by
economy sector. Journal of Business Finance & Accounting, 17, 713-
730.
[3] Ashari, N., Koh, H.C. Tan, S.L. Wong, W.H. (1994) Factors affecting
income smoothing among listed companies in Singapore, Accounting
and Business Research, 24, 291-301.
[4] Bartov, E., Gul, F. & Tsui, j. (2000) Discretionary-accruals models and
audit qualifications. Journal of Accounting and Economics, 30, 421-452.
[5] Bathke, A. W. Lorek, J., K. S. &d Willinger, G.L. (1989) Firm-size and
the predictive ability of quarterly earnings data. The Accounting Review,
64, 49-68.
[6] Barua, A., J. Legoria, & Moffitt, J.S. (2006) Accruals management to
achieve earnings benchmarks: a comparison of pre-managed profit and
loss firms, Journal of Business Finance & Accounting 33, 653-670.
[7] Beck, E. M., Horan, P. M. & Tolbert, C. M. (1978) 'Stratification in a
Dual Economy: a sectorial model of earnings determination. American
Sociological Review, October, 704-720.
[8] Beasley, M. S., Carcello, J. V., Hermanson, D. R. & Lapides, P. D.
(2000) Fraudulent financial reporting: consideration of industry traits
and corporate governance mechanisms. Accounting Horizon, 14, 441-
454.
[9] Beaver, W., Kennelly, J. & Voss, W. (1968) Predictive ability as a
criterion for the evaluation of accounting data. The Accounting Review,
43, 675-683.
[10] Belkaoui, A. & Picur, R. D. (1984) The smoothing of income numbers:
some empirical evidence on systematic differences between Core and
Periphery industrial sectors. Journal of Business Finance & Accounting,
11, 527-545.
[11] Beneish, M. D. (1997) Detecting GAAP violation: implications for
assessing earnings management among firms with extreme financial
performance. Journal of Accounting and Public Policy, 16, 271-309.
[12] Beneish, M. D. (1999) The detection of earnings manipulation.
Financial Analysts Journal 55, 24-36.
[13] Bergstersser, D., & Philippon,T., (2006) CEO incentives and earnings
management, Journal of Financial Economics 80, 511-529.
[14] Bernard, V. (1995) Feltham-Ohlson framework: implications for
empiricists. Contemporary Accounting Research, 11, 773-747.
[15] Bluestone, B., Murphy, W. M. & Stevenson, M. (1973) Low wages and
the working poor. The Institute of Labor and Industrial Relations. The
University of Michigan-Wayne State University.
[16] Buffini, F. (2002), Chairman Heed ASIC-s Wake-up Call, Australian
Financial Review, September 25 (John Fairfax Group, Sydney).
[17] Butler, M., Leone, A. and Willenborg, M. (2004) An empirical analysis
of auditor reporting and its association with abnormal accruals, Journal
of Accounting and Economics 37, 139-165.
[18] Bowen, R., Noreen, E. & Lacey, J. (1981) Determinants of the corporate
decision to capitalize interest. Journal of Accounting and Economics, 3,
151-179.
[19] Burgstahler, D. & Dichev, I. (1997) Earnings management to avoid
earnings decreases and losses. Journal of Accounting and Economics,
24, 99-126.
[20] Callen, J. L., Livnat, J. & Segal, D. (2002) Accounting restatement: are
they always bad news? , University of Toronto, Toronto, ON.
[21] Chan, H., Faff, D., & Ramsay.A (2002) Firm size and information
content of annual earnings announcement: Australian evidence,
unpublished paper.
[22] Chambers, R.J. (1973) Securities and obscurities: a case for reform of
the law of company accounts. (Gower, Australia).
[23] Charitou, A., Lambertides,N., & Trigeorgis, L.(2007) Earnings behavior
of financially distressed firms: the role of institutional ownership,
Abacus 43, 271-296.
[24] Clinch, G. & Margliolo, J., (1993), "CEO compensation and components
of earnings in bank holding companies", Journal of Accounting and
Economics, 16, 241- 272.
[25] Collins, D., & Kothari, S.P. (1989) An analysis of intertemporal and
cross-sectional determinants of earnings response coefficients, Journal
of Accounting and Economics 11, 143-181.
[26] Core, John, Wayne, R., and Verdi, R. (2007) Is accruals quality a priced
risk factor? Journal of Accounting and Economics In Press, Corrected
Proof.
[27] Craig, R., & Walsh, P. (1989) Adjustments for 'extraordinary items' in
smoothing reported profit of listed Australian companies: some
empirical evidence, Journal of Business Finance & Accounting 16, 229-
245.
[28] Defond, M. L. & Jiambalvo, J. (1991) Incidence and circumstances of
accounting errors. Accounting Review, 66,643-655.
[29] DeFond, M. L., & Jiambalvo, J. (1994) Debt covenant violation and
manipulation of accruals, Journal of Accounting and Economics 17,
145-176.
[30] Defond, M.L., & Subramanyam, K., (1998) Auditor changes and
discretionary accruals, Journal of Accounting and Economics 25, 35-67.
[31] DeAngelo, L., (1986), "Accounting numbers as market valuation
substitutes: A study of management buyouts of public stockholders",
The Accounting Review, 61, 400-420.
[32] DeAngelo, L. and Skinner, J., (1994), "Accounting Choice in Troubled
Companies", Journal of Accounting and Economics, 17, 113-143.
[33] Dhaliwal, D. S. (1988) The effect of the firm's business risk on the
choice of accounting methods. The Journal of Business Finance and
Accounting, 15, 289-302.
[34] Dechow, P.M. (1994) Accounting earnings and cash flows as measures
of firm performance: the role of accounting accruals, Journal of
Accounting and Economics, 18, 3-42.
[35] Dechow, P. M., Sloan, R. G. & Sweeney, A. P. (1995) Detecting
earnings management. The Accounting Review, 70, 193-225.
[36] Dechow, P. M., Sloan, R. & A., S. (1996) Causes and consequences of
earnings manipulations: An analysis of firms subject to enforcement
actions by the SEC. Contemporary Accounting Research, 13, 1-36.
[37] Easton, P.D., and Zmijewsik, M. (1989) Cross-sectional variation in the
stock market response to accounting earnings announcement. , Journal
of Accounting and Economics 11, 117-141.
[38] Eddey, P. H. & Taylor, S. (1999) Directors- recommendations on
takeover bids and the management of earnings: evidence from Australian
takeovers. Abacus, 35, 29-45.
[39] Erickson, M., & S. Wang (1999) Earnings management by acquiring
firms in stock for stock mergers, Journal of Accounting and Economics
27, 149-176.
[40] Fama, E. F., and MacBeth, J. D. (1973) Risk, Return, and Equilibrium:
Empirical Tests, Journal of Political Economy, 81, 607.
[41] Feltham, G. & Ohlson, J. (1995) Valuation and clean surplus accounting
for operating and financial activities. Contemporary Accounting
Research, 11, 689-732.
[42] Fields, T., Lys, T.& Vincent, L. (2001) Empirical research on accounting
choice, Journal of Accounting and Economics, 31, 255-307.
[43] Firth, M.; Fung, P. M. Y., & Rui, O. M.(2007) Ownership, two-tier
board structure, and the informativeness of earnings - Evidence from
China, Journal of Accounting and Public Policy In Press, Corrected
Proof.
[44] Francis, J., Maydew, E. & Sparks, H. (1999) The role of Big 6 Auditors
in the credible reporting of accruals. Auditing, 18, 17-34.
[45] Fudenberg, D. & Tirole, J. (1995) A theory of income and dividend
smoothing based on incumbency rents. Journal of Political Economy,
103, 75-93
[46] Gaver, J., Gaver, K.M., & Austin, J. R. (1995) Additional evidence on
bonus plans and income management, Journal of Accounting and
Economics, 19, 3-28.
[47] Green, D. & Segal, J. (1996) The predictive power of first-quarter earnings reports: A replication. Journal of Accounting Research, 4, 21- 36 .
[48] Godfrey, J., Mather, P. & Ramsay, A. (2003) Earnings and impression management in financial reports: The case of CEO changes. Abacus, 39, 95-123.
[49] Guay, W. R., Kothari, S. P. & Watts, R. L. (1996) A market-based evaluation of discretionary accrual models. Journal of Accounting Research, 34, 83-105.
[50] Hayn, C, (1995) The information content of losses, The Journal of Accounting and Economics, 20, 125-153.
[51] Healy, P. M. (1985) The effect of bonus schemes on accounting decisions. Journal of Accounting and Economics, 7, 85-107.
[52] Healy, P. M. & Palepu, K. G. (1990) Effectiveness of accounting-based dividend Covenants. Journal of Accounting and Economics, 12, 97-123.
[53] Hagerman, R. & Zmijewsik, M. (1979) Some economic determinants of accounting policy choice. Journal of Accounting and Economics, 1, 141¬161.
[54] Hribar, P. & Nichols, D. C. (2007) The Use of Unsigned Earnings Quality Measures in Tests of Earnings Management, Journal of Accounting Research, forthcoming.
[55] Hochberg, Y. V., Newman, Y. S. & Rierson, M. A. (2004) Information in the Time-series Dynamics of Earnings Management: Evidence from Insider Trading and Firm Returns. Working Paper, Northwestern University.
[56] Holland, K., & Jackson, R.H.G. (2004) Earnings management and deferred tax, Accounting and Business Research ,34, 101-123.
[57] Holland, D. & Ramsay, A. (2003) Do Australian companies manage earnings to meet simple earnings benchmarks? Accounting and Finance, 43, 41-62.
[58] Holthausen, R. W. (1990) Accounting method choice: opportunistic behavior, efficient contracting, and information perspectives. Journal of Accounting and Economics, 12, 207-218.
[59] Holthausen, R. W. & Larcker, D. F. (1995) Annual bonus schemes and the manipulation of earnings. Journal of Accounting and Economics, 19, 129-74.
[60] Jones, J. (1991) Earnings management during import relief investigations. Journal of Accounting Research, 29, 193-228.
[61] Jones, S. & Sharma, R. (2001) The impact of free cash flow, financial leverage and accounting regulation on earnings management in Australia's 'Old' and 'New' economics. Managerial Finance, 27, 18-38.
[62] Kasznik, R. (1999) On the association between voluntary disclosure and earnings management. Journal of Accounting Research 37, 57-81.
[63] Kinnunen, J., Kasanen, E. & Niskanen, J. (1995) Earnings management and the economy sector hypothesis: empirical evidence on a converse relation in the Finnish case. Journal of Business Finance & Accounting, 22, 497-520.
[64] Kinney, W. R. J. & Mcdaniel, S. L. (1989) Characteristics of firms correcting previously reported quarterly earnings. Journal of Accounting and Economics, 11, 71-93.
[65] Klein, A. (2002) Audit committees, board of direct characteristics and earnings management.. Journal of Accounting and Economics, 33, 375¬400.
[66] Kothari, S.P., Leone, A.J., & Wasley, C.E. (2005) Performance Matched Discretionary Accrual Measures, Journal of Accounting and Economics 39, 163-197.
[67] Koh, P.S. (2003) On the association between institutional ownership and aggressive corporate earnings management in Australia, The British Accounting Review, 35, 105-128.
[68] Leuz, C., Nanda, D. & Wysocki, P. D. (2003) Earnings management and investor protection: an international comparison. Journal of Financial Economics, 69, 505-527.
[69] Lim, S. & Matolcsy, Z. (1999) Earnings management of firms subjected to product price controls. Accounting and Finance, 39, 131-150.
[70] Louis, H. (2004) Earnings management and the market performance of acquiring firms, Journal of Financial Economics 74, 121-148.
[71] McNichols, M. & Wilson, P. (1988) Evidence of earnings management from the provision for bad debts. Journal of Accounting Research, (Supplement), 1-31.
[72] Monem, R. M. (2003) Earnings management in response to the introduction of the Australian Gold Tax. Contemporary Accounting Research, 20, 747-774.
[73] Nelson, M. W., Elliott, J. A. & Tarpley, R. L. (2002) Evidence from auditors about managers' and auditors' earnings-management decisions. The Accounting Review, 77, 175-202.
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[1] Abarbanell, J., & Levy, R., (2003) Can stock recommendations predict
earnings management and analyst' earnings forecast errors?, Journal of
Accounting Research, 41,1-31.
[2] Albrecht, W. D. & Richardson, F. M. (1990) Income smoothing by
economy sector. Journal of Business Finance & Accounting, 17, 713-
730.
[3] Ashari, N., Koh, H.C. Tan, S.L. Wong, W.H. (1994) Factors affecting
income smoothing among listed companies in Singapore, Accounting
and Business Research, 24, 291-301.
[4] Bartov, E., Gul, F. & Tsui, j. (2000) Discretionary-accruals models and
audit qualifications. Journal of Accounting and Economics, 30, 421-452.
[5] Bathke, A. W. Lorek, J., K. S. &d Willinger, G.L. (1989) Firm-size and
the predictive ability of quarterly earnings data. The Accounting Review,
64, 49-68.
[6] Barua, A., J. Legoria, & Moffitt, J.S. (2006) Accruals management to
achieve earnings benchmarks: a comparison of pre-managed profit and
loss firms, Journal of Business Finance & Accounting 33, 653-670.
[7] Beck, E. M., Horan, P. M. & Tolbert, C. M. (1978) 'Stratification in a
Dual Economy: a sectorial model of earnings determination. American
Sociological Review, October, 704-720.
[8] Beasley, M. S., Carcello, J. V., Hermanson, D. R. & Lapides, P. D.
(2000) Fraudulent financial reporting: consideration of industry traits
and corporate governance mechanisms. Accounting Horizon, 14, 441-
454.
[9] Beaver, W., Kennelly, J. & Voss, W. (1968) Predictive ability as a
criterion for the evaluation of accounting data. The Accounting Review,
43, 675-683.
[10] Belkaoui, A. & Picur, R. D. (1984) The smoothing of income numbers:
some empirical evidence on systematic differences between Core and
Periphery industrial sectors. Journal of Business Finance & Accounting,
11, 527-545.
[11] Beneish, M. D. (1997) Detecting GAAP violation: implications for
assessing earnings management among firms with extreme financial
performance. Journal of Accounting and Public Policy, 16, 271-309.
[12] Beneish, M. D. (1999) The detection of earnings manipulation.
Financial Analysts Journal 55, 24-36.
[13] Bergstersser, D., & Philippon,T., (2006) CEO incentives and earnings
management, Journal of Financial Economics 80, 511-529.
[14] Bernard, V. (1995) Feltham-Ohlson framework: implications for
empiricists. Contemporary Accounting Research, 11, 773-747.
[15] Bluestone, B., Murphy, W. M. & Stevenson, M. (1973) Low wages and
the working poor. The Institute of Labor and Industrial Relations. The
University of Michigan-Wayne State University.
[16] Buffini, F. (2002), Chairman Heed ASIC-s Wake-up Call, Australian
Financial Review, September 25 (John Fairfax Group, Sydney).
[17] Butler, M., Leone, A. and Willenborg, M. (2004) An empirical analysis
of auditor reporting and its association with abnormal accruals, Journal
of Accounting and Economics 37, 139-165.
[18] Bowen, R., Noreen, E. & Lacey, J. (1981) Determinants of the corporate
decision to capitalize interest. Journal of Accounting and Economics, 3,
151-179.
[19] Burgstahler, D. & Dichev, I. (1997) Earnings management to avoid
earnings decreases and losses. Journal of Accounting and Economics,
24, 99-126.
[20] Callen, J. L., Livnat, J. & Segal, D. (2002) Accounting restatement: are
they always bad news? , University of Toronto, Toronto, ON.
[21] Chan, H., Faff, D., & Ramsay.A (2002) Firm size and information
content of annual earnings announcement: Australian evidence,
unpublished paper.
[22] Chambers, R.J. (1973) Securities and obscurities: a case for reform of
the law of company accounts. (Gower, Australia).
[23] Charitou, A., Lambertides,N., & Trigeorgis, L.(2007) Earnings behavior
of financially distressed firms: the role of institutional ownership,
Abacus 43, 271-296.
[24] Clinch, G. & Margliolo, J., (1993), "CEO compensation and components
of earnings in bank holding companies", Journal of Accounting and
Economics, 16, 241- 272.
[25] Collins, D., & Kothari, S.P. (1989) An analysis of intertemporal and
cross-sectional determinants of earnings response coefficients, Journal
of Accounting and Economics 11, 143-181.
[26] Core, John, Wayne, R., and Verdi, R. (2007) Is accruals quality a priced
risk factor? Journal of Accounting and Economics In Press, Corrected
Proof.
[27] Craig, R., & Walsh, P. (1989) Adjustments for 'extraordinary items' in
smoothing reported profit of listed Australian companies: some
empirical evidence, Journal of Business Finance & Accounting 16, 229-
245.
[28] Defond, M. L. & Jiambalvo, J. (1991) Incidence and circumstances of
accounting errors. Accounting Review, 66,643-655.
[29] DeFond, M. L., & Jiambalvo, J. (1994) Debt covenant violation and
manipulation of accruals, Journal of Accounting and Economics 17,
145-176.
[30] Defond, M.L., & Subramanyam, K., (1998) Auditor changes and
discretionary accruals, Journal of Accounting and Economics 25, 35-67.
[31] DeAngelo, L., (1986), "Accounting numbers as market valuation
substitutes: A study of management buyouts of public stockholders",
The Accounting Review, 61, 400-420.
[32] DeAngelo, L. and Skinner, J., (1994), "Accounting Choice in Troubled
Companies", Journal of Accounting and Economics, 17, 113-143.
[33] Dhaliwal, D. S. (1988) The effect of the firm's business risk on the
choice of accounting methods. The Journal of Business Finance and
Accounting, 15, 289-302.
[34] Dechow, P.M. (1994) Accounting earnings and cash flows as measures
of firm performance: the role of accounting accruals, Journal of
Accounting and Economics, 18, 3-42.
[35] Dechow, P. M., Sloan, R. G. & Sweeney, A. P. (1995) Detecting
earnings management. The Accounting Review, 70, 193-225.
[36] Dechow, P. M., Sloan, R. & A., S. (1996) Causes and consequences of
earnings manipulations: An analysis of firms subject to enforcement
actions by the SEC. Contemporary Accounting Research, 13, 1-36.
[37] Easton, P.D., and Zmijewsik, M. (1989) Cross-sectional variation in the
stock market response to accounting earnings announcement. , Journal
of Accounting and Economics 11, 117-141.
[38] Eddey, P. H. & Taylor, S. (1999) Directors- recommendations on
takeover bids and the management of earnings: evidence from Australian
takeovers. Abacus, 35, 29-45.
[39] Erickson, M., & S. Wang (1999) Earnings management by acquiring
firms in stock for stock mergers, Journal of Accounting and Economics
27, 149-176.
[40] Fama, E. F., and MacBeth, J. D. (1973) Risk, Return, and Equilibrium:
Empirical Tests, Journal of Political Economy, 81, 607.
[41] Feltham, G. & Ohlson, J. (1995) Valuation and clean surplus accounting
for operating and financial activities. Contemporary Accounting
Research, 11, 689-732.
[42] Fields, T., Lys, T.& Vincent, L. (2001) Empirical research on accounting
choice, Journal of Accounting and Economics, 31, 255-307.
[43] Firth, M.; Fung, P. M. Y., & Rui, O. M.(2007) Ownership, two-tier
board structure, and the informativeness of earnings - Evidence from
China, Journal of Accounting and Public Policy In Press, Corrected
Proof.
[44] Francis, J., Maydew, E. & Sparks, H. (1999) The role of Big 6 Auditors
in the credible reporting of accruals. Auditing, 18, 17-34.
[45] Fudenberg, D. & Tirole, J. (1995) A theory of income and dividend
smoothing based on incumbency rents. Journal of Political Economy,
103, 75-93
[46] Gaver, J., Gaver, K.M., & Austin, J. R. (1995) Additional evidence on
bonus plans and income management, Journal of Accounting and
Economics, 19, 3-28.
[47] Green, D. & Segal, J. (1996) The predictive power of first-quarter earnings reports: A replication. Journal of Accounting Research, 4, 21- 36 .
[48] Godfrey, J., Mather, P. & Ramsay, A. (2003) Earnings and impression management in financial reports: The case of CEO changes. Abacus, 39, 95-123.
[49] Guay, W. R., Kothari, S. P. & Watts, R. L. (1996) A market-based evaluation of discretionary accrual models. Journal of Accounting Research, 34, 83-105.
[50] Hayn, C, (1995) The information content of losses, The Journal of Accounting and Economics, 20, 125-153.
[51] Healy, P. M. (1985) The effect of bonus schemes on accounting decisions. Journal of Accounting and Economics, 7, 85-107.
[52] Healy, P. M. & Palepu, K. G. (1990) Effectiveness of accounting-based dividend Covenants. Journal of Accounting and Economics, 12, 97-123.
[53] Hagerman, R. & Zmijewsik, M. (1979) Some economic determinants of accounting policy choice. Journal of Accounting and Economics, 1, 141¬161.
[54] Hribar, P. & Nichols, D. C. (2007) The Use of Unsigned Earnings Quality Measures in Tests of Earnings Management, Journal of Accounting Research, forthcoming.
[55] Hochberg, Y. V., Newman, Y. S. & Rierson, M. A. (2004) Information in the Time-series Dynamics of Earnings Management: Evidence from Insider Trading and Firm Returns. Working Paper, Northwestern University.
[56] Holland, K., & Jackson, R.H.G. (2004) Earnings management and deferred tax, Accounting and Business Research ,34, 101-123.
[57] Holland, D. & Ramsay, A. (2003) Do Australian companies manage earnings to meet simple earnings benchmarks? Accounting and Finance, 43, 41-62.
[58] Holthausen, R. W. (1990) Accounting method choice: opportunistic behavior, efficient contracting, and information perspectives. Journal of Accounting and Economics, 12, 207-218.
[59] Holthausen, R. W. & Larcker, D. F. (1995) Annual bonus schemes and the manipulation of earnings. Journal of Accounting and Economics, 19, 129-74.
[60] Jones, J. (1991) Earnings management during import relief investigations. Journal of Accounting Research, 29, 193-228.
[61] Jones, S. & Sharma, R. (2001) The impact of free cash flow, financial leverage and accounting regulation on earnings management in Australia's 'Old' and 'New' economics. Managerial Finance, 27, 18-38.
[62] Kasznik, R. (1999) On the association between voluntary disclosure and earnings management. Journal of Accounting Research 37, 57-81.
[63] Kinnunen, J., Kasanen, E. & Niskanen, J. (1995) Earnings management and the economy sector hypothesis: empirical evidence on a converse relation in the Finnish case. Journal of Business Finance & Accounting, 22, 497-520.
[64] Kinney, W. R. J. & Mcdaniel, S. L. (1989) Characteristics of firms correcting previously reported quarterly earnings. Journal of Accounting and Economics, 11, 71-93.
[65] Klein, A. (2002) Audit committees, board of direct characteristics and earnings management.. Journal of Accounting and Economics, 33, 375¬400.
[66] Kothari, S.P., Leone, A.J., & Wasley, C.E. (2005) Performance Matched Discretionary Accrual Measures, Journal of Accounting and Economics 39, 163-197.
[67] Koh, P.S. (2003) On the association between institutional ownership and aggressive corporate earnings management in Australia, The British Accounting Review, 35, 105-128.
[68] Leuz, C., Nanda, D. & Wysocki, P. D. (2003) Earnings management and investor protection: an international comparison. Journal of Financial Economics, 69, 505-527.
[69] Lim, S. & Matolcsy, Z. (1999) Earnings management of firms subjected to product price controls. Accounting and Finance, 39, 131-150.
[70] Louis, H. (2004) Earnings management and the market performance of acquiring firms, Journal of Financial Economics 74, 121-148.
[71] McNichols, M. & Wilson, P. (1988) Evidence of earnings management from the provision for bad debts. Journal of Accounting Research, (Supplement), 1-31.
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@article{"International Journal of Business, Human and Social Sciences:61216", author = "Lan Sun and Subhrendu Rath", title = "An Empirical Analysis of Earnings Management in Australia", abstract = "This is a comprehensive large-sample study of Australian earnings management. Using a sample of 4,844 firm-year observations across nine Australia industries from 2000 to 2006, we find substantial corporate earnings management activity across several Australian industries. We document strong evidence of size and return on assets being primary determinants of earnings management in Australia. The effects of size and return on assets are also found to be dominant in both income-increasing and incomedecreasing earnings manipulation. We also document that that periphery sector firms are more likely to involve larger magnitude of earnings management than firms in the core sector.
", keywords = "Earnings management, discretionary accruals, income-increasing/decreasing manipulation, dual economy sector", volume = "3", number = "7", pages = "1607-17", }
