DANCEST 805 Lecture Notes - Lecture 15: Descriptive Statistics, Accrual, Ex-Ante
Document Summary
Dechow et al. do research on what the probability is that there is earnings management in a company. They develop a composite (samengesteld) measure of the likelihood of misstatement (=em = manipulation). The composite measure is the f-score, explained later. Misstatements resulting in sec actions are rare events. Less than 0. 5% of firm-years available on compustat. Misstatements are very costly to: auditors (lawsuits), investors (negative stock return), regulators (reputation for quality and enforcement) and capital markets (investor confidence and reduced liquidity) They find that all measures of accrual quality are unusually high in misstating years relative to the broad population of firms. They also found that the percentage of soft assets is high. Which suggests that manipulating firms have more ability to change and adjust assumptions to influence short-term earnings. They found that the reversal of accruals is particularly important for detecting the misstatement.
