Firm diversification and earnings management: evidence from seasoned equity offerings

Thong, Tiong Yang, Lim, Chee Yeow, and Ding, David K. (2008) Firm diversification and earnings management: evidence from seasoned equity offerings. Review of Quantitative Finance and Accounting, 30 (1). pp. 69-92.

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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.

Item ID: 41191
Item Type: Article (Research - C1)
ISSN: 1573-7179
Keywords: seasoned equity offerings; corporate diversification; earnings management; accruals; stock market performance
Date Deposited: 09 Nov 2016 04:14
FoR Codes: 15 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 1501 Accounting, Auditing and Accountability > 150103 Financial Accounting @ 100%
SEO Codes: 97 EXPANDING KNOWLEDGE > 970115 Expanding Knowledge in Commerce, Management, Tourism and Services @ 100%
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