Asset returns under periodic revelations of earnings management.

• Autores: Bo Sun
• Localización: International economic review, ISSN-e 1468-2354, Vol. 55, Nº. 1, 2014, págs. 255-282
• Idioma: inglés
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• Resumen

  • The article investigates stock return dynamics in an environment where executives have an incentive to maximize their compensation by artificially inflating earnings. A principal-agent model with financial reporting and managerial effort is embedded in a Lucas asset-pricing model with periodic revelations of the firm's underlying profitability. The return process generated from the model is consistent with a range of empirical regularities observed in the return data: volatility clustering, asymmetric volatility, and high idiosyncratic volatility. The calibration results further indicate that earnings management can be quantitatively important in accounting for the dynamic patterns of stock returns. [ABSTRACT FROM AUTHOR]