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營運資金管理與裁決性應計數之估計
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Consequently, the accruals of the company decrease. Since Jones-type models cannot control
for this effect, the estimated discretionary accruals are overestimated (underestimated) in
companies that increase (decrease) working capital. Moreover, a high degree of working
capital management causes a severely-biased estimate.
This study investigated the effect of working capital management on discretionary
accruals, which were estimated using Jones-type models. In addition to testing the empirical
models and performing simulation procedures with the entire sample, this study analyzed
particular samples, such as companies that increase capital (seasoned equity offering) and
companies that reduce capital (for settling accumulated losses). First of all, previous studies
have indicated that companies that increase capital might manipulate earnings through
accruals to increase stock offering price and to reduce the cost of capital (Teoh et al., 1998b;
Kim and Park, 2005). However, when companies increase capital based on corporate growth
(Kim and Weisbach, 2008), they expand their working capital. Using Jones-type models to
estimate accruals may overestimate discretionary accruals, causing incorrect empirical
results of inferring upward earnings manipulation. Secondly, when companies incur
substantial losses, management might resort to actions such as writing off accumulated losses
by reducing capital and optimizing the financial structure by adjusting working capital. If the
effect of reducing the working capital of companies with capital reduction is not reflected in
the revenue, Jones-type models may cause discretionary accruals to be underestimated; thus,
the empirical results would support the hypothesis that companies that reduce capital tend to
manipulate earnings downward.
2. Methodology
Based on the discussion in the previous section, we developed the following hypotheses
to examine the phenomenon of potential estimation bias in the discretionary accruals caused
by using Jones-type models:
H1: A high degree of working capital management causes a severe estimation bias in
the discretionary accruals caused by using Jones-type models.
H2: Compared with other firms, seasoned equity offering firms that increase
investment in working capital yield larger discretionary accruals.
H3: Compared with other firms, firms that reduce capital (to settle accumulated losses)
and reduce investment in working capital yield fewer discretionary accruals.