Market rewards to patterns of increasing earnings: effects of cash flow patterns, accruals manipulation, real activities manipulation and conservative accounting
- Autores: Su-Ping Liu
- Directores de la Tesis: Juan Manuel García Lara (dir. tes.)
- Lectura: En la Universidad Carlos III de Madrid ( España ) en 2013
- Idioma: inglés
- Tribunal Calificador de la Tesis: Begoña Giner Inchausti (presid.), Beatriz García Osma (secret.), Garen Markarian (voc.)
- Materias:
- Enlaces
- Tesis en acceso abierto en: e-Archivo
- Resumen
In this dissertation I investigate whether market rewards to a pattern of increasing earnings vary with certain signals of whether the pattern is genuine or fabricated. Among these signals, I examine growth in cash flows, accrual-based earnings management, earnings management through the manipulation of real operating activities, and conservative accounting. The findings show that market participants assign higher price-earnings multiples to firms when their pattern of increasing earnings is supported by the same pattern of increasing cash flows. I also show that market participants assign lower price-earnings multiples to firms suspected of having engaged in accrual-based earnings management, sales manipulation and overproduction to achieve the earnings pattern. However, market participants do not penalize firms suspected of having achieved the earnings pattern through the opportunistic reduction of discretionary expenses. Regarding the effects of conservative accounting on market rewards to a sequential pattern of increasing earnings, I predict that conditional conservatism enhances the credibility of earnings patterns by introducing constraints to income-increasing earnings management. Using several measures of conditional conservatism, the results show that market participants assign higher price-earnings multiples to firms with a long stream of earnings increases when their accounting is more conditionally conservative.
