Published in:Marshall School of Business Working Paper ; No. MKT 04-09
Extent:
1 Online-Ressource (45 p)
Language:
Not determined
DOI:
10.2139/ssrn.1138164
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments January 2009 erstellt
Description:
We provide new empirical evidence on segment-level earnings management for a large sample of multi-segment firms by examining whether and how managers exploit their discretion in cost allocation to avoid reporting losses. We document that prior to SFAS 131 there is a significant discontinuity at zero (a quot;kinkquot;) in the frequency distribution of segment profits. After the implementation of SFAS 131, however, we do not observe a kink. Further, we find that the extent of cost under-allocation is significantly greater for the quot;small profit segmentsquot; than for the quot;small loss segmentsquot; only in the pre-SFAS 131 period; it is insignificantly different across the two groups in the post-SFAS 131 period. Taken together, our results are consistent with the pre-SFAS 131 kink being driven by opportunistic cost allocation, and the new segment reporting standard deterring earnings management in the form of cost under-allocation