3. Do Simi This paper A sample of 1. They model the 1. There are differences executive Kedia examines the 224 firms endogeneity (firm between stock-based and stock options (2003) with characteristics) as a options-based incentives generate announced non-zero correlation for earnings incentives for incentives for financial between the management; earnings earnings restatements endogenous variable 2. There is no evidence management? management. during the and the error term in the on the equity holdings Evidence from period from restatement equation; earnings management accounting January 1997 2. They develop a incentive; restatements to June 2002 probit model to test the 3. Large managerial based on pay-for-performance ownership offsets the ExecuComp incentive. positive effect of stock data in options earnings America. management incentive. 4. Insider Messod This paper A sample of They run a regression 1. accounting Managers’ trading and D. examines the 462 firms model to test whether and trading choices in the earnings debt contact that pre-default earnings period preceding management in Eric and insider experience a management connects technical default is distressed Press trading first episode to both abnormal influenced by the threat firms and incentives for of technical insider selling and of litigation influences; Mark default default costs. 2. Managers tend to E. between 1983 abstain trading and Vargus earnings and 1997 in earnings management (1993) management. America. prior to default. 5. Performance S.P. This paper A sample of They develop the The matched examines the 123000 performance-matched discretionary discretionary specification observations discretionary accruals accruals measurement is accruals Andrew and power of during the to measure earnings well specified and measures J. tests based on period from management and powerful. Leone 1962 to 1999 compare it with and in America. modified Jones model. Charles discretionary E. accruals. Wasley (2005) 6. Earnings Sugata This paper A sample of He adopts three models Managers manipulate management mainly 21758 firm to calculate abnormal real activities to avoid through real provides the year cash flow from reporting annual losses activities (2006) measurement observations operations, abnormal through three ways; those manipulation for real during the discretionary expenses are price discounts to activities period form and abnormal temporarily increase earnings 1987 to 2001 production costs, sales, overproduction to management. in America. respectively. report lower cost of goods sold and reduction of discretionary expenditures to improve reported margins.
3. Do executive stock options generate incentives for earnings management? Evidence from accounting restatements Simi Kedia (2003) This paper examines the incentives for earnings management. A sample of 224 firms with announced financial restatements during the period from January 1997 to June 2002 based on ExecuComp data in America. 1. They model the endogeneity (firm characteristics) as a non-zero correlation between the endogenous variable and the error term in the restatement equation; 2. They develop a probit model to test the pay-for-performance incentive. 1. There are differences between stock-based and options-based incentives for earnings management; 2. There is no evidence on the equity holdings earnings management incentive; 3. Large managerial ownership offsets the positive effect of stock options earnings management incentive. 4. Insider trading and earnings management in distressed firms Messod D. Eric Press and Mark E. Vargus (1993) This paper examines the debt contact and insider trading incentives for earnings management. A sample of 462 firms that experience a first episode of technical default between 1983 and 1997 in America. They run a regression model to test whether pre-default earnings management connects to both abnormal insider selling and default costs. 1. Managers’ accounting and trading choices in the period preceding technical default is influenced by the threat of litigation influences; 2. Managers tend to abstain trading and earnings management prior to default. 5. Performance matched discretionary accruals measures S.P. Andrew J. Leone and Charles E. Wasley (2005) This paper examines the specification and power of tests based on discretionary accruals. A sample of 123000 observations during the period from 1962 to 1999 in America. They develop the performance-matched discretionary accruals to measure earnings management and compare it with modified Jones model. The discretionary accruals measurement is well specified and powerful. 6. Earnings management through real activities manipulation Sugata (2006) This paper mainly provides the measurement for real activities earnings management. A sample of 21758 firm year observations during the period form 1987 to 2001 in America. He adopts three models to calculate abnormal cash flow from operations, abnormal discretionary expenses and abnormal production costs, respectively. Managers manipulate real activities to avoid reporting annual losses through three ways; those are price discounts to temporarily increase sales, overproduction to report lower cost of goods sold and reduction of discretionary expenditures to improve reported margins.