Earnings management

A B S T R A C T

Recent studies indicate a trade-off relation between accrual-based and real earnings management strategies.

This paper studies the relation by examining the impact of the equity compensation of chief executive officers (CEOs) on earnings management and the market pricing of the two types of.. .

Moreover, this study proposes a “within-group difference” approach for both the explained and explanatory variables to mitigate the over-parameter problem in the conventional fixed effects regression model for panel data.

Our empirical results show that CEO equity compensation is positively associated with both accrual-based and real  .

Moreover, the reward of the joint effect of accrual-based and real is positive in terms of stock returns and stronger than a stand-alone strategy.

Overall, our results indicate that the relation between accrual-based and real  for firms is complementary rather than a trade-off.

Summary and conclusions

The relation between accrual-based and real earnings management has been widely investigated.

Using the work of Dechow et al. (2010) as a research framework, our study contributes to this line of research by examining the .

We provide evidence that the relation between the two types of  is complementary and not a trade-off for firms.

However, when firms adopt either accrual-based or real earnings management as a stand-alone strategy, the rewards in terms of stock returns are lower and even negative.

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