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The Effect of Earnings Management on the Value Relevance of Accounting Information
Author(s) -
Marquardt Carol A.,
Wiedman Christine I.
Publication year - 2004
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.0306-686x.2004.00541.x
Subject(s) - earnings management , earnings , earnings response coefficient , net income , equity (law) , book value , relevance (law) , accounting , business , value (mathematics) , economics , stock (firearms) , stock price , earnings per share , enterprise value , computer science , law , biology , engineering , mechanical engineering , paleontology , machine learning , series (stratigraphy) , political science
This study investigates whether opportunistic earnings management affects the value relevance of net income and book value in determining stock price. We document a decrease in the value relevance of earnings in the year of an equity offering for a group of firms with ex post evidence of earnings management. This decrease is greater for the discretionary component of earnings than for the non‐discretionary component. These results are robust to model specification and the type of offering. However, the results are sensitive to firms’ disclosure activity prior to the offering.