Equity overvaluation and managers' choices of using opportunistic underlying reporting and accruals earnings management: Australian evidence

Yiru Yang, Indra Abeysekera

Research output: Contribution to conferenceConference paper presented at Conference (not in Proceedings)

Abstract

According to Jensen's (2016) agency theory of overvalued equity, firms with overvalued equity have strong incentives to engage in different opportunistic earnings management mechanisms so that to sustain the overvaluation. This paper attempts to examine whether overvalued firms engage in opportunistic earnings management and whether the duration of overvaluation influences managers' choices of using different earnings management mechanisms (opportunistic underlying earnings reporting and/or accruals earnings management) using Australian Securities Exchange (ASX) 200 firms from the year 2009 to 2012 as a sample. The paper presents evidence that overvalued firms as more likely to disclose underlying earnings and report underlying earnings opportunistically for the whole sample periods. Considering the influences of overvalued earnings management choices, the results suggest that managers engage in earnings management in the early stages of overvaluation. In the later periods, managers are likely to disclose underlying earnings and disclose them opportunistically for the overvaluation. The results hold true even using alternative overvaluation earnings management measurements. Collectively, the results are consistent with Jensen (2005) agency theory that the duration of firm overvaluation is an important determinant of mangers' choices of using alternative earnings mangement mechanisms
Original languageEnglish
Pages153-153
Number of pages1
Publication statusPublished - 2016
Externally publishedYes
EventAccounting and Finance Association of Australia and New Zealand Conference - Gold Coast, Australia
Duration: 3 Jul 20165 Jul 2016

Conference

ConferenceAccounting and Finance Association of Australia and New Zealand Conference
Abbreviated titleAFAANZ
CountryAustralia
CityGold Coast
Period3/07/165/07/16

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Yang, Y., & Abeysekera, I. (2016). Equity overvaluation and managers' choices of using opportunistic underlying reporting and accruals earnings management: Australian evidence. 153-153. Paper presented at Accounting and Finance Association of Australia and New Zealand Conference, Gold Coast, Australia.