Firm life cycle and detection of accrual-based earnings manipulation

The identification of estimation samples is important for estimating discretionary accruals using an accrual model. This study proposes an alternative identification of estimation samples using a firm’s life cycle (i.e., life cycle-based estimation samples). Analyses using U.S. and international data show that when detecting accrual manipulation, life cycle-based estimation samples outperform industry-based or size-based estimation samples in sample retention, specification, and detection power. Improved detection power by life cycle-based estimation samples is also evident in the AAERs sample. Lastly, I reexamine Dechow, Richardson, and Tuna (DRT) (2003) and Teoh, Wong, and Rao (TWR) (1998) applying life cycle-based estimation samples. I find that life cycle-based estimation samples change the inferences from DRT by improving test power and mitigate misspecification in TWR. Collectively, the current study provides empirical evidence that supports the use of life cycle-based estimation samples over other existing estimation samples.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Accountancy

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2015

Author dc:creator

• Chang, Hye Sun

Contributors dc:contributor

• Li, Laura Yue
• Sougiannis, Theodore
• Donohoe , Michael
• Liang, Feng

• firm life cycle
• estimation samples
• discretionary accruals
• earnings management

Statement dc:rights

• Copyright 2015 Hye Sun Chang

Language dc:language

en

Handle dc:identifier

http://hdl.handle.net/2142/78349

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/78349