Financial Crisis and Earnings Management under U.S. GAAP and IFRS
This paper examines the effects of the global financial crisis of 2008 on real and accrual-based earnings management activities of foreign companies listed in the United States as American Depositary Receipts (ADRs). The ADR firms are classified according to whether they report under U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Accrual-based earnings management is measured using the absolute value of performance-matched discretionary accruals. We also use the positive and negative values of performance-matched discretionary accruals to examine income-increasing and income-decreasing earnings management, respectively. Real earnings management proxies are measured using performance-matched measures of the abnormal levels of cash flow from operations, production costs, and discretionary expenses. In summary, our findings indicate no difference in accrual-based earnings management for ADRs reporting under IFRS and U.S. GAAP but suggest that ADRs reporting under IFRS are more likely to manage earnings using income-decreasing discretionary accruals and aggregate real earnings management than ADRs reporting under U.S. GAAP during the financial crisis.
Vichitsarawong, T., & Eng, L. (2020). Financial Crisis and Earnings Management under U.S. GAAP and IFRS. Review of Pacific Basin Financial Markets and Policies, 23(2) World Scientific Publishing Co.
The definitive version is available at https://doi.org/10.1142/S0219091520500150
Business and Information Technology
Keywords and Phrases
Accruals; Global Financial Crisis; IFRS; Real Earnings Management; U.S. GAAP
International Standard Serial Number (ISSN)
Article - Journal
© 2020 World Scientific Publishing Co., All rights reserved.
01 Jun 2020