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

Moshe Hagigi
Boston University

Kumar Sivakumar
Boston University

Eng Wu
Boston University

Abstract: This study examines the relation between earnings management activities of firms issuing equity and the level of their subsequent equity issuance in the immediate future. We hypothesize that equity issuers with less need for subsequent equity issuances are more likely to engage in “income-increasing” earnings management prior to their equity issuances. In contrast, equity issuers with more need for subsequent equity issuances would be more concerned about the potential implications of current earnings management on their future reported earnings. We examine their levels of earnings accruals around equity issuances by listed U.S. companies during the period 1984-2001. We find that the level of income-increasing abnormal accruals around current equity issuance is negatively related to their need for subsequent equity issuance. Our results show that as the need for subsequent equity issuance decreases (increases), the level of current income-increasing accruals increases (decreases.)

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