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 82 Notwithstanding the above, Christensen et al. (2015) report that managerial reporting incentives dominate accounting standards in influencing accounting quality. The extensive literature comparing international financial statements mainly examines two manifestations of earnings management across different accounting regimes: income smoothing and managing toward positive earnings. No study directly examines competing theories regarding managerial behavior in this context. Thus, after testing the putative relation between discretionary accruals and real activities manipulation, we examine whether management preferences and incentives affect the two earnings management strategies for firms that voluntarily changed their filing status to U.S. GAAP/IFRS after the relaxation of the reconciliation requirement. This leads to the following hypothesis: H 2 : The magnitudes of accrual-based earnings management and real activities manipulation are associated with managerial incentives (i.e., big bath, income smoothing, and the existence and tightness of debt covenants) for firms voluntarily switching to U.S. GAAP/IFRS from domestic standards after the SEC’s removal of the reconciliation requirement. 3. Measurement of Accrual-Based Earnings Management and Real Activities Manipulation 3.1 Accrual-Based Earnings Management Given that discretionary accruals are unobservable, we use the modified Jones model (Jones, 1991) as described in Dechow, Sloan, and Sweeney (1995) to develop a proxy. Specifically, we use a cross-sectional model to calculate discretionary accruals, where for each sample year we estimate the model for every industry classified by its two-digit SIC code as follows: 5 5 We use the cross-sectional approach rather than the time-series approach to measure discretionary accruals. The cross-sectional approach has an advantage in that it controls for the effects of changing industry-wide economic conditions (Teoh, Wong, and Rao, 1998). Further, prior research (e.g., Bartov, Gul, and Tsui, 2000) documents that the cross-sectional approach outperforms its time-series counterpart in detecting earnings management. The assumption underlying the former is that firms in the same industry have similar operating cycles; the latter assumes that the length of a firm’s operating cycle does not change over the estimation and event period (Bartov et al., 2000). The results (not reported) show that our sample firms are not much different from the average firm in their respective industry. Thus, the fact that the model coefficients estimated from cross-sectional regressions are the same for all firms in the industry should not represent a serious problem.