This paper aims to provide a test of whether stocks mis-pricing are caused by earnings management. If investors unable to detect the direction and magnitude of the managed portion of reported earnings then firms may tend to adopt income-increasing earnings management to over-value or income-decreasing earnings management to under-value. This paper examines the possibility of stocks mis-pricing by measuring future abnormal returns based on the magnitude of earnings management. Using five separate and distinct methodologies, this study find consistent evidence of significant negative abnormal trading returns from a hedge portfolio based on the magnitude of earnings management. These results represent evidence of significant mis-pricing associated with earnings management.
Relation:
管理與系統 / Journal of Management & Systems;14(4):545-572
