Investors Behavior, Governance and Earnings Management

Abstract

The aim of this paper is to study the relationship between earnings management, governance and investors behavior, since this latter can inform about the nature of earnings management and can be considered as a governance mechanism to reduce accounts manipulations. On the basis of a sample of 700 American firms for the period of 1996-2006, our empirical results show that investors who take short positions, are able to interpret the information detected from the earnings management. The activity of these investors may be considered as an indicator of the quality of the governance structure and the presence and nature of earnings management. The under-reaction of investors to information leads to short-term sale of the shares of poorly governed firms and characterized by an opportunistic earnings management and to invest in firms well-governed and characterized by an informational earnings management therefore an abnormal profit can be realized.

Keywords: {'name': 'Earnings management'}, {'name': 'Governance'}, {'name': 'investor’s behavior'}

Authors & affiliations

Afraa Khzouri
Affiliation not supplied

Amira Neffati
Affiliation not supplied

Deposited references

Supplied references, not a list of publications citing this article.

DOI: 10.2308/accr.2002.77.4.755

Bernard Victor L. and Thomas Jacob K. (1989), Evidence that stock prices do not fully reflect the implications of current earnings for future earnings, Journal of Accounting Research, vol 49, p. 307-343.

DOI: 10.2307/2491062

DOI: 10.2139/ssrn.391262

Black B (2001), the legal and institutionnel preconditions for strong securities markets, ULCA Law Review, vol 48, p. 781-855.

Black, Jang & Kim (2002), Does corporate governance matter? Evidence from Korean market, Asian Corporate Governance Conference in Seoul, Korea.

DOI: 10.1111/j.1540-6261.1996.tb05222.x

Chopra N., Lakonishok J. & Ritter Jay R. (1993), Measuring Abnormal Performance: Do the U.S. Improve a Firm’s Information Environment et Increase Market Value? Journal of accounting research.

DOI: 10.1111/j.1540-6261.1987.tb04569.x

DOI: 10.1111/j.1540-6261.1985.tb05004.x

DOI: 10.1016/S0304-405X(01)00056-3

Desai, Ramensh, Thiagarajan & Balachandrean (2002), Short Selling and Corporate Malfeasance, Working paper, www.ssrn.com.

Dinh Thanh Huong (2005), Performance boursière à court et à long terme suite à l’annonce des résultats annuels : une approche comportementale », working paper, www.ssrn.com.

Durnev, Artyom & Kim E. Han (2003), To Steal or Not to Steal: Firm Attributes, Working Paper, www.ssrn.com.

DOI: 10.1016/S0304-405X(98)00026-9

DOI: 10.1016/0304-405X(93)90023-5

DOI: 10.1111/j.1540-6261.1992.tb04398.x

DOI: 10.1111/j.1540-6261.1995.tb05169.x

DOI: 10.2139/ssrn.203092

Figlewski S (1981), The information journal effect of restrictions on short sales some empirical evidence, Journal of finance, p.427-465.

DOI: 10.1111/j.1540-6261.1993.tb04702.x

DOI: 10.1111/0022-1082.00342

DOI: 10.2139/ssrn.303979

DOI: 10.1111/j.1540-6261.1997.tb01113.x

DOI: 10.1111/j.1540-6261.1997.tb01113.x

DOI: 10.1111/j.1540-6261.1997.tb01113.x

DOI: 10.1111/j.1540-6261.1997.tb04825.x

Mai H. (1992), Stratégie de sur-réaction et corrélation des rentabilités sur le marché français des actions de 1977 à 1990, Cahier de recherche du CEREG, Université ParisDauphine.

DOI: 10.2139/ssrn.423461

DOI: 10.2139/ssrn.338681

Senkowska E. & Orsero H (1995), Irrationalités collectives, Edition Delachaux et Niestlé.

Zhang Huai, 2002, Detecting Earning Management-Evidence from Rounding-up in Reported EPS, working paper, www.ssrn.com.

Zhang Yan, 2002, Do short sellers detect earnings management?, working papers, www.ssrn.com