Publication detail

Earnings Management to Avoid Delisting from a Stock Market

Author(s): Mgr. Aleš Čornanič ,
Jiří Novák M.Sc., Ph.D., Deloitte Corporate Chair,
Type: IES Working Papers
Year: 2015
Number: 22
ISSN / ISBN:
Published in: IES Working Papers 22/2015
Publishing place: Prague
Keywords: Delisting, earnings management, discretionary accruals, insider trading, reverse stock split, audit, Sarbanes-Oxley Act
JEL codes: G34, M41, M42, M48
Suggested Citation: Cornanic A., Novak J. (2015). “ Earnings Management to Avoid Delisting from a Stock Market” IES Working Paper 22/2015. IES FSV. Charles University.
Abstract: We show that firms ‘in danger’ of being delisted from a stock market (NASDAQ) report higher performance-adjusted discretionary accruals and the inflated accruals are associated with an increased likelihood of maintained listing. Accruals of firms ‘in danger’ are less positive in fiscal quarters audited by a Big-4 auditor and after the implementation of SOX. In contrast, accruals are higher for firms that benefit most from public listing and for firms with good future prospects. This suggests that managers consider reputation and litigation risk associated with earnings management and they manage earnings only when they believe the firm will recover in near future. The market can thus interpret discretionary accruals as a signal revealing managers’ private information about firm quality. Consistent with the signaling explanation we observe a stronger stock price reaction on the announcement of earnings that contain large accruals in threatened firms.
Downloadable: wp_2015_22_novak

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