The Sale of Assets to Manage Earnings in Japan

The Sale of Assets to Manage Earnings in Japan In this article we investigate Japanese managers’ use of income from the sale of fixed assets and marketable securities to manage earnings. The earnings management target examined is Japanese managers’ forecasts of current–year earnings. We find a negative relation between income from asset sales and management forecast error. When current reported operating income is below (above) management's forecast of operating income, firms increase (decrease) earnings through the sale of fixed assets and marketable securities. The results hold after controlling for expected future performance, debt–to–equity ratio, size, growth, and last year's income from asset sales. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting Research Wiley

The Sale of Assets to Manage Earnings in Japan

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Abstract

In this article we investigate Japanese managers’ use of income from the sale of fixed assets and marketable securities to manage earnings. The earnings management target examined is Japanese managers’ forecasts of current–year earnings. We find a negative relation between income from asset sales and management forecast error. When current reported operating income is below (above) management's forecast of operating income, firms increase (decrease) earnings through the sale of fixed assets and marketable securities. The results hold after controlling for expected future performance, debt–to–equity ratio, size, growth, and last year's income from asset sales.

Journal

Journal of Accounting ResearchWiley

Published: Mar 1, 2003

References

  • Revaluations of Fixed Assets and Future Firm Performance: Evidence from the UK
    Aboody, Aboody; Barth, Barth; Kasznik, Kasznik
  • Smoothing Income in Anticipation of Future Earnings
    Defond, Defond; Park, Park
  • The Persistence and Forecast Accuracy of Earnings Components in the USA and Japan
    Herrmann, Herrmann; Inoue, Inoue; Thomas, Thomas
  • The Choice of Accounting Policy in Japan
    Inoue, Inoue; Thomas, Thomas
  • Evaluating the Reliability of Current Value Estimates
    Sloan, Sloan

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