Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments April 15, 2023 erstellt
Description:
This study investigates the effect of litigation risk on classification shifting by using the quasi-natural experiment of the Ninth Circuit Court ruling as a decreasing litigation risk event. The results suggest that firms experiencing lower litigation risk are less likely to engage in opportunistic classification shifting due to the increase in detection costs outweighing the increase in litigation-specific costs. There is a substitution effect that leads managers to rely more on accrual-based earnings management, that experiences a decrease in overall costs, at the expense of classification shifting. The results are robust to using propensity score matching, alternative research designs, and various robustness checks. Overall, this research contributes to the literature on earnings management and litigation risk by highlighting the interplay between various tools of perception management. and have important implications for regulators and auditors in understanding how changes in litigation risk affect the choice of earnings management tools