TY - JOUR
T1 - Uncovering real earnings management
T2 - Pay attention to risk-taking behavior
AU - Alharbi, Samar
AU - Mamun, Md Al
AU - Atawnah, Nader
N1 - Publisher Copyright:
© 2021 by the authors. Licensee MDPI, Basel, Switzerland.
PY - 2021/12
Y1 - 2021/12
N2 - We examine the impact of corporate risk-taking on firm-level real earnings management. We find that firms with higher risk-taking engage in higher real earnings management. Our results are robust to a series of robustness tests, including simultaneous least squares approach, firm fixed effect, change analysis, and pseudo difference-in-difference analysis. Additional analyses reveal that the impact of risk-taking on real earnings management is more pronounced among firms that experience prior-year loss and are run by top-echelons who are risk lovers. Sarbanes-Oxley Act (SOX) regulation does not attenuate the positive effect of risk-taking on real earnings management. However, external monitoring by institutional investors and takeover susceptibility curb the relation between risk-taking and real earnings management. Our study highlights that outsider, such as investors and regulators, should pay close attention to a firm’s risk-taking behavior to unravel the extent of real earnings management in the firm.
AB - We examine the impact of corporate risk-taking on firm-level real earnings management. We find that firms with higher risk-taking engage in higher real earnings management. Our results are robust to a series of robustness tests, including simultaneous least squares approach, firm fixed effect, change analysis, and pseudo difference-in-difference analysis. Additional analyses reveal that the impact of risk-taking on real earnings management is more pronounced among firms that experience prior-year loss and are run by top-echelons who are risk lovers. Sarbanes-Oxley Act (SOX) regulation does not attenuate the positive effect of risk-taking on real earnings management. However, external monitoring by institutional investors and takeover susceptibility curb the relation between risk-taking and real earnings management. Our study highlights that outsider, such as investors and regulators, should pay close attention to a firm’s risk-taking behavior to unravel the extent of real earnings management in the firm.
KW - Agency theory
KW - Corporate governance
KW - Real earnings management
KW - Risk-taking
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U2 - 10.3390/ijfs9040053
DO - 10.3390/ijfs9040053
M3 - Article
AN - SCOPUS:85116122192
SN - 2227-7072
VL - 9
JO - International Journal of Financial Studies
JF - International Journal of Financial Studies
IS - 4
M1 - 53
ER -