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

77 NTU Management Review Vol. 30 No. 2 Aug. 2020 multiple earnings management strategies on firms whose filing choice is most likely attributable to the regulatory change to those on firms that are subject to different reporting requirements. We provide evidence that removing the reconciliation requirement results in firms manipulating the increased discretion. The evidence is of interest to accounting regulators, current/future cross-listed firms, and investors. Specifically, our findings on the earnings management potential of IFRS adoption have implications for the SEC on the potential use of the standards by U.S. firms as well as for other regulators on the mandatory use of the standards throughout the world. 4 The decision to waive the U.S. GAAP reconciliation requirement and provide the IFRS option may lead investors in non-U.S. firms to assess the implications of potential changes in firms’ information environments. Second, we estimate a system of equations to explain the magnitudes of abnormal accruals and real earnings management as a function of executives’ reporting incentives and other predetermined firm characteristics for firms that are subject to the SEC’s elimination of the reconciliation requirement. In contrast, prior studies comparing accounting quality under various standards focus only on accrual-based earnings management and generally fail to take into account managerial incentives. Finally, we extend our research to the trade-off between accrual-based earnings management and real activities manipulation. In contrast with mainstream U.S. results in the literature, this paper documents that simultaneous and sequential decision processes co-exist in firms adopting IFRS voluntarily prior to the regulatory change and maintaining their filing choice afterward, depending on which real activities (i.e., production costs or discretionary expenditures) they alter. The remainder of this paper is organized as follows. In the next section we discuss prior research and develop our hypotheses. Section 3 describes the proxies for discretionary accruals and real activities manipulation. This is followed by separate sections presenting the research design, sample selection and industry breakdowns, primary empirical results, and additional tests, respectively. Section 8 summarizes our results and offers directions for future research. 4 Although the near-term use of IFRS in the U.S. continues to face long odds, the passage of time may permit additional changes to be made to converge the two sets of accounting standards (i.e., U.S GAAP and IFRS).