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

Michael D. Yu
University of Missouri - Columbia

Abstract: This study systematically investigates the relation between accounting standards and international earnings management. I find that international accounting standards, accrual-based accounting standards, accounting standards with increased disclosure requirements, and separating tax and financial reporting all constrain earnings management. Following previous studies, I treat accounting standard measures as being endogenous, and use instrumental variables to re-estimate my model. I find consistent results. I conclude that accounting standard policy is an important institution in determining the quality of reported financial information. Different from prior international earnings management studies, I directly test whether firms are managing earnings internationally using the distribution method. I find evidence that firms are managing reported earnings around the world. I also document that high-quality accounting standards decrease analyst forecast error.

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