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An International Meeting of American Accounting
Association
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Restructuring Rules and Endogeneity |
Allen D. Blay
Univerisity of California Riverside
W. Trexler Proffitt
Franklin and Marshall University
Abstract: This paper presents the results of a time-series analysis of a financial reporting component, the restructuring charge. We collect over 15,000 restructuring charges and analyze how a charge not specifically mentioned in any standard existing at the time became common in the 1980’s. We propose that the issuance of accounting standards served to legitimize the charge, and management made the endogenous choice to expand the components, and increase the occurrence of the charge. Our results support our proposition of legitimacy and correspond with Nelson et al.’s (2003) findings that auditors realize the restructuring charge is used for earning’s management purposes, yet often do not adjust. We also propose that the newly adopted SFAS 146 will not serve to reduce the number of restructuring charges, but that management will alter the components of the charge to comply with the standard, thus resulting in smaller median charges. Our results support this proposition.