Title

Firm diversification and earnings management: Evidence from seasoned equity offerings

Publication Type

Journal Article

Publication Date

2008

Abstract

Popular press suggests that diversified firms are more aggressive in managing earnings than non-diversified firms. We examine this claim in the seasoned equity offering (SEO) setting, where firms have been shown to have the incentive to manage earnings upwards. Using the cross-sectional modified Jones [(1991) J Accounting Res 29:193–228] model to measure discretionary current accruals, we find that discretionary current accruals are higher among diversified firms than in non-diversified ones. Our evidence is consistent with the view that the extent of firm diversification is directly related to the degree of earnings management. We further show that diversified issuers with high discretionary accruals underperformed other SEO firms.

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Quantitative Finance

Publication

Review of Quantitative Finance and Accounting

Volume

30

Issue

1

First Page

69

Last Page

92

ISSN

0924-865X

Identifier

10.1007/s11156-007-0043-x

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.