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Volume 13, No. 2,
December
2014 |
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Managers’ Incentives,
Earnings
Management
Strategies, and |
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Investor Sentiment |
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Zhonghai Yang |
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Accounting School, Harbin University of Commerce,
China
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Roger Su |
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Lecturer of Accounting,
Auckland University of Technology,
New Zealand |
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Qianqian Zhang |
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Accounting School, Harbin University of Commerce,
China |
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Ying Sun |
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Accounting School, Harbin University of Commerce,
China |
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| Abstract |
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The impact of managers’ incentives and earnings
management methods on
investor sentiment, based on 9581 listed firms in
China from 2006 to 2011, is studied.
This paper examines the
influence of managers’ incentives and
earnings management methods on investor sentiment
and intends to study how managers’ incentives
influence
real
earnings management (REM)
and earnings management methods, and following on
how REM and earnings management methods influence
investor sentiment. The empirical results indicate
that managers use REM to manipulate the earnings in
order to be able to declare a profit, avoid loss,
refinance, and change executives. The listed
companies with higher executive compensations prefer
to use
accrual
earnings management (AEM).
However,
making larger profits by using REM activities is not
a universal phenomenon in China because the capital
market in China is not efficient. This paper
also finds that, when
a company makes larger
profits using
REM activities, investors are optimistic. When a
company uses AEM
activities to increase earnings,
investors
readily recognize AEM
and they become pessimistic.
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Key words:
real
earnings management (REM);
accrual
earnings management
(AEM);
management
incentives;
investor
sentiment
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JEL
classification:
F3; G1 |
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