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

The Effects of Relaxing the Reconciliation Requirement in Foreign Private Issuers’ SEC Filings on Earnings Management Strategies: IFRS Adopters versus U.S. GAAPAdopters 74 less earnings management are perceived as higher quality (Barth, Landsman, and Lang, 2008). However, prior studies (e.g., Iatridis, 2010; Lang, Raedy, and Yetman, 2003) that compare properties of accounting amounts based on different sets of standards examine only one earnings management tool (i.e., Discretionary Accruals) in settings where earnings management is likely to occur. But given the portfolio of earnings management strategies, managers probably use multiple mechanisms to reach their earnings targets. There is substantial evidence, for example, that managers use accrual-based earnings management and real activities manipulation simultaneously to dampen income volatility (e.g., Barton, 2001; Huang, Zhang, Deis, and Moffitt, 2009). As such, our study responds to the call in Fields, Lys, and Vincent (2001) for a more integrated approach to examining accounting decisions and the existence of endogeneity/exogeneity in exploring the earnings management opportunities that come from allowing IFRS reporting in the United States. Conversely, it is likely there is a direct substitution between the two earnings management mechanisms after the fiscal year-end due to their sequential nature (see Pincus and Rajgopal, 2002; Zang, 2012). That is, given the timing differences of the two mechanisms, managers may first undertake real activities manipulation and then manage accruals in an attempt to achieve the desired earning targets. Accordingly, this research explicitly considers the implications of timing differences between the two earnings management approaches and aims to determine whether discretionary accruals and real activities management behave as complementary or substitute mechanisms that are simultaneously or sequentially determined. Extant research (e.g., Christensen, Lee, Walker, and Zeng, 2015) indicates that managerial reporting incentives dominate accounting standards in influencing accounting quality. The SEC’s waiver of IFRS-to-U.S. GAAP reconciliation thus provides a unique setting in which to explore the relative impact of managerial incentives and accounting regulations on a firm’s reporting decisions. 2 Prior studies (e.g., Barth et al., 2012; Lin et al., 2012) comparing accounting amounts based on, and the economic implications of, firms applying U.S. GAAP and IFRS explicitly control for factors other than accounting standards, such as enforcement and litigation environments. However, these studies focus 2 The U.S. Securities and Exchange Commission’s (SEC’s) comparability concerns for the accounting regulations include the effects of all factors that impact accounting amounts, including managerial incentives, enforcement, and regulatory and litigation environments (SEC, 2010).