Earnings management using discontinued operations
Abstract
This study investigates whether managers use classification shifting to manage earnings when reporting discontinued operations. Using a methodology similar to McVay (2006), we find evidence consistent with the hypothesis that firms shift operating expenses to income-decreasing discontinued operations to increase core earnings. Our findings also indicate that managers use classification shifting to meet or beat analysts' forecasts. Finally, we find that, since the introduction of SFAS No. 144, the reporting frequency of discontinued operations has increased; however, the magnitude of classification shifting has decreased. We provide potential explanations for this finding.
Publication Title
Accounting Review
Recommended Citation
Barua, A., Lin, S., & Sbaraglia, A. (2010). Earnings management using discontinued operations. Accounting Review, 85 (5), 1485-1509. https://doi.org/10.2308/accr.2010.85.5.1485
