An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Kenton K. Yee
Columbia University

Abstract: I study a dynamic signal jamming model in which a manager manipulates coordinated earnings and earnings forecasts over a career spanning several financial reporting periods. In the model, the manager seeks to maximize equilibrium market price minus disutility for violating book-keeping rules. Moreover, the manager takes into account that (1) she has finite (but longer than one period) tenure with the firm; (2) creation and amortization of discretionary balance-sheet accruals (which only she observes) reduces future earnings; and (3) the market interprets earnings and forecasts with rational expectations. This contribution sheds light on the intertemporal role of unobserved discretionary balance-sheet accruals and how amortization enhances public information by linking current to future earnings.

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