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There’s no smoke without fire: Does the context of earnings management predict the existence of earnings management and future stock returns?

Iqbal, Abdullah and Nguyen, Nguyet Thi Minh and Shiwakoti, Radha K. (2019) There’s no smoke without fire: Does the context of earnings management predict the existence of earnings management and future stock returns? Working paper. Kent, UK (Submitted) (Access to this publication is currently restricted. You may be able to access a copy if URLs are provided)

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Abstract

This paper constructs a signal-based composite index, namely ESCORE, which captures the context of earnings management. Specifically, ESCORE aggregates 15 individual signals related to earnings management based on prior relevant literature. After establishing that ESCORE is capable of capturing the context in which earnings management is more likely to occur, the study finds that low ESCORE firms outperform those with high ESCORE by 1.37% per month after controlling for risk loadings on the market, size, book-to-market and momentum factors up to one year after portfolio formation in the UK. This finding implies that investors tend to ignore the observable context of earnings management. When tested using the US data, most of the main results appear to hold.

Item Type: Monograph (Working paper)
Uncontrolled keywords: Earnings management; market anomaly; stock returns predictability; earnings management detection models.
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HG Finance
Divisions: Faculties > Social Sciences > Kent Business School
Faculties > Social Sciences > Kent Business School > Accounting and Finance
Depositing User: Abdullah Iqbal
Date Deposited: 28 Nov 2017 11:24 UTC
Last Modified: 29 Jul 2019 18:36 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/64815 (The current URI for this page, for reference purposes)
Iqbal, Abdullah: https://orcid.org/0000-0002-3013-1007
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