Internal Performance Measures and Earnings Management: Evidence from Segment Earnings

• 成果类型: Article
• 署名作者: Gross, Christian; Wagenhofer, Alfred; Windisch, David
• 署名单位: University of Graz; University of Amsterdam; University of Graz
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2019-0155
• 发表日期: 2024
• 页码: 259-283
• 关键词: sfas no. 131; Information environment; equity incentives; capital-markets; BONUS SCHEMES; AGENCY COSTS; firm; INVESTMENT; determinants; managerial

摘要

We examine whether the design of a firm's internal management accounting system is associated with GAAP earnings management. We exploit the fact that ASC 280 mandates a management approach requiring multisegment firms to disclose their segment earnings as defined internally by their management accounting system. We posit that the less these segment earnings are decoupled from GAAP earnings, the higher are the costs of earnings management because earnings management spills over to segment earnings and distorts information used for internal decision -making. Thus, we predict that firms with more decoupled segment earnings engage in more earnings management. Using a large sample of U.S. firms from 1998 to 2020, we find support for this prediction. We also find that the decision usefulness of segment earnings for segment investment purposes decreases as earnings management increases, with this association being more pronounced for firms with less decoupled segment earnings measures.