Earnings management using classification shifting of revenues

Malikov, Kamran, Manson, Stuart and Coakley, Jerry (2018) Earnings management using classification shifting of revenues. British Accounting Review, 50 (3), 291-305. (doi:10.1016/j.bar.2017.10.004).

Record type: Article

Abstract

This paper examines a novel form of classification shifting as an earnings management tool using a sample of 12,804 UK listed firm-year observations for the 1995–2014 period. It proposes a new approach to classification shifting whereby firms have scope to misclassify revenues from non-operating activities as operating revenues. The results establish that firms engage in classification shifting of non-operating revenues to inflate operating revenues. They indicate that firms in the period following mandatory IFRS adoption are associated with an increase in this practice, consistent with IFRS offering greater scope for manipulation. Further tests reveal that classification shifting of revenues is more pervasive for firms that report operating losses or have low growth.

Text

BAR2018 - Accepted Manuscript

Available under License Creative Commons Attribution Non-commercial No Derivatives.

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