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Real activities manipulation and firm valuation

Real activities manipulation and firm valuation
Real activities manipulation and firm valuation
In this paper, we study the link between real earnings management and firm value. Consistent with prior studies, we expect the ability of a firm to generate future cash flows to be significantly impaired by its use of real activities manipulations. Using a cross-section of companies from the Standard & Poor’s Compustat database from 1990 to 2013, we find that firms with higher real earnings management are associated with lower industry-adjusted Tobin’s Q and firm-specific misvaluation measure. Our results are consistent under several regression techniques addressing potential endogeneity issues and alternative proxies for real earnings management after controlling for known factors to affect firm market values.
0924-865X
1201-1226
Mellado-Cid, Cristhian
155cfb09-e6f9-488c-bb2e-91dcd77a9bbc
Jory, Surendranath
2624eb24-850a-48f6-b3c6-c96749b87322
Ngo, Thanh Ngoc
1f75c1f4-fa4e-4dfd-ab1d-ff129a8ee24c
Mellado-Cid, Cristhian
155cfb09-e6f9-488c-bb2e-91dcd77a9bbc
Jory, Surendranath
2624eb24-850a-48f6-b3c6-c96749b87322
Ngo, Thanh Ngoc
1f75c1f4-fa4e-4dfd-ab1d-ff129a8ee24c

Mellado-Cid, Cristhian, Jory, Surendranath and Ngo, Thanh Ngoc (2018) Real activities manipulation and firm valuation. Review of Quantitative Finance and Accounting, 50 (4), 1201-1226. (doi:10.1007/s11156-017-0659-4).

Record type: Article

Abstract

In this paper, we study the link between real earnings management and firm value. Consistent with prior studies, we expect the ability of a firm to generate future cash flows to be significantly impaired by its use of real activities manipulations. Using a cross-section of companies from the Standard & Poor’s Compustat database from 1990 to 2013, we find that firms with higher real earnings management are associated with lower industry-adjusted Tobin’s Q and firm-specific misvaluation measure. Our results are consistent under several regression techniques addressing potential endogeneity issues and alternative proxies for real earnings management after controlling for known factors to affect firm market values.

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More information

Accepted/In Press date: 31 July 2017
e-pub ahead of print date: 9 August 2017
Published date: 2018

Identifiers

Local EPrints ID: 412904
URI: http://eprints.soton.ac.uk/id/eprint/412904
ISSN: 0924-865X
PURE UUID: e218c912-8fa8-4abc-be0c-8b2e41612164
ORCID for Surendranath Jory: ORCID iD orcid.org/0000-0002-8265-0001

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Date deposited: 08 Aug 2017 16:31
Last modified: 16 Mar 2024 05:35

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Contributors

Author: Cristhian Mellado-Cid
Author: Thanh Ngoc Ngo

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