Arbeitspapier

Earnings management to avoid delisting from a stock market

We show that firms 'in danger' of being delisted from a stock market (NASDAQ) report higher performance-adjusted discretionary accruals and the inflated accruals are associated with an increased likelihood of maintained listing. Accruals of firms 'in danger' are less positive in fiscal quarters audited by a Big-4 auditor and after the implementation of SOX. In contrast, accruals are higher for firms that benefit most from public listing and for firms with good future prospects. This suggests that managers consider reputation and litigation risk associated with earnings management and they manage earnings only when they believe the firm will recover in near future. The market can thus interpret discretionary accruals as a signal revealing managers' private information about firm quality. Consistent with the signaling explanation we observe a stronger stock price reaction on the announcement of earnings that contain large accruals in threatened firms.

Language
Englisch

Bibliographic citation
Series: IES Working Paper ; No. 22/2015

Classification
Wirtschaft
Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
Accounting
Auditing
Accounting and Auditing: Government Policy and Regulation
Subject
Delisting
earnings management
discretionary accruals
insider trading
reverse stock split
audit
Sarbanes-Oxley Act

Event
Geistige Schöpfung
(who)
Čornanič, Aleš
Novák, Jiří
Event
Veröffentlichung
(who)
Charles University in Prague, Institute of Economic Studies (IES)
(where)
Prague
(when)
2015

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Čornanič, Aleš
  • Novák, Jiří
  • Charles University in Prague, Institute of Economic Studies (IES)

Time of origin

  • 2015

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