Imperfect Accounting and Reporting Bias

• 成果类型: Article
• 署名作者: Fang, Vivian W.; Huang, Allen H.; Wang, Wenyu
• 署名单位: University of Minnesota System; University of Minnesota Twin Cities; Hong Kong University of Science & Technology; Indiana University System; Indiana University Bloomington
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12170
• 发表日期: 2017
• 页码: 919-962
• 关键词: earnings following restatements; information-content; executive-compensation; performance; management; disclosure; ceo; errors; CONSEQUENCES; determinants

摘要

Errors and bias are both inherent features of accounting. In theory, while errors discourage bias by lowering the value relevance of accounting, they can also facilitate bias by providing camouflage. Consistent with theory, we find a hump-shaped relation between a firm's propensity to engage in intentional misstatement and the prevalence of unintentional misstatements in the firm's industry for the whole economy and a majority of the industries. The result is robust to using firms' number of items in financial statements and exposure to complex accounting rules as alternative proxies for errors and to using the restatement amount in net income to quantify the magnitude of bias and errors. To directly test for the two effects of errors, we show that when errors are more prevalent, the market reacts less to firms' earnings surprises and bias is more difficult to detect. Our results highlight the imperfectness of accounting, advance understanding of firms' reporting incentives, and shed light on accounting standard setting.