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Product Market Competition, Information and Earnings Management
Author(s) -
Markarian Garen,
Santalo´ Juan
Publication year - 2014
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/jbfa.12064
Subject(s) - earnings , competitor analysis , competition (biology) , product market , accrual , incentive , earnings management , business , product (mathematics) , panel data , earnings response coefficient , value (mathematics) , economics , industrial organization , microeconomics , accounting , marketing , econometrics , ecology , geometry , mathematics , machine learning , computer science , biology
We study theoretically the effect of product market competition on the incentives to engage in earnings manipulation, and we show how manipulating earnings is particularly rewarding in more competitive markets since the boost in market value of reporting good earnings is especially important. Using a panel dataset of about 70,000 observations spanning the period 1989–2011, we document that the competitive environment is an important determinant of Jones type discretionary accruals and it also affects real earnings management. In additional analysis, we find that the effect of competition on earnings manipulation is particularly important for companies that seem to be underperforming their competitors and that the competition‐earnings management linkage is moderated by the degree of information visibility at the industry level.