臺大管理論叢 NTU Management Review VOL.30 NO.2

123 NTU Management Review Vol. 30 No. 2 Aug. 2020 8. Conclusions This paper provides empirical evidence on how the SEC’s decision to eliminate the U.S. GAAP reconciliation requirement affects firms whose filing choice is most likely attributable to this decision (i.e., those that voluntarily switched to IFRS from local standards after the elimination), as well as firms that voluntarily changed their filing status to U.S. GAAP after the elimination. Our empirical tests are motivated by the argument that opportunistic firms may use the increased discretion from removing the reconciliation requirement to manage earnings and provide less informative financial statements, and that application of IFRS by non-U.S. firms may result in quality of accounting data that are not comparable to those resulting from application of U.S. GAAP (see Barth et al., 2012; Lin et al., 2012). Specifically, we investigate the earnings management potential of permitting IFRS reporting in the United States for non-U.S. cross-listed firms voluntarily switching to either U.S. GAAP or IFRS by estimating a set of simultaneous equations with discretionary accruals and real activities manipulation tested as the dependent variables. The results generally suggest that discretionary accruals and real activities manipulation (through both overproducing inventory and cutting discretionary expenditures) are partial substitutes for earnings management, and that their magnitudes are determined simultaneously for non-U.S. firms voluntarily switching to U.S. GAAP/ IFRS after the SEC waived the reconciliation requirement. However, we also document that firms applying IFRS voluntarily prior to the elimination adjust the magnitude of their discretionary accruals, mostly in the fourth quarter (or after the fiscal year-end but before the earnings announcement date), based on the realized level of real activities manipulation through cutting discretionary expenditures. In contrast to those for firms that adopted IFRS voluntarily before or after the elimination, findings from additional analyses reveals that firms required to use IFRS by their home jurisdiction manage earnings only through altering abnormal accruals and inventory overproduction simultaneously. Taken together, the combined evidence suggests that voluntary and mandatory IFRS adopters exhibit significant differences in earnings management strategies. Our inferences contrast with Zang (2012) overall conclusion of a sequential real- activities-manipulation-then-discretionary-accruals decision process. There are three possible explanations for these different findings. First, Zang (2012) sample differs from ours; she studies whether U.S. public firms use these two earnings management strategies as substitutes in managing earnings. Second, she fails to take into account executives’ reporting incentives in her research; the focus of her study is on the trade-off between the