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The Sale of Assets to Manage Earnings in Japan
Author(s) -
Herrmann Don,
Inoue Tatsuo,
Thomas Wayne B.
Publication year - 2003
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/1475-679x.00097
Subject(s) - business , earnings management , earnings , equity (law) , earnings before interest and taxes , earnings per share , debt , finance , fixed asset , asset (computer security) , book value , monetary economics , economics , computer security , production (economics) , political science , computer science , law , macroeconomics
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.