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Earnings Manipulation

In: Business and Management

Submitted By mascotti
Words 430
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* Introduction Earnings management is an important aspect of a firm financial performance and valuation. In this article, Authors study earnings manipulation among corporate firm. He discusses (I) three income benchmarks managers tend to beat or exceeds at all costs; a) managers avoid negative to zero profit, b) earnings below prior period earnings, c) and earnings that fall below analysts’ forecast. Authors called these earnings benchmarks or earnings shortfalls. The article (II) develops two main tools that managers use (1) discretional income accruals and (2) non-operating income to manipulate their earnings. Authors discuss (III) some reasons that motive managers to engage in such practice and behaviors; for instance managers may inflate the firm’s real income to improve the market value of the firm, the stock price and its expected return. Managers may manipulate earnings to maximize their compensation, bonuses, stock options, or simply to secure their position. Others reasons managers mislead earnings is to maintain a loan or a line of credit from a financial institution and to distract and fool the beliefs of firm’s stakeholders as a whole that lead to deceive public trust. I- Managers Earnings Benchmarks

In corporate organization especially, financial Managers’ main goal is to maximize shareholders’ firm value, to achieve their goal, managers make various analysis and financial decisions throughout many aspects of the company. One of the aspects is earnings management. In this article, Authors exposed three managers’ concerned regarding a company earnings: first, managers shows great concerned when the company generate negative to zero profit on a given operating cycle. Such results may have an explanation, especially at early stage of the lifetime of the firm. However, outsiders easily perceive a negative to nil earning as the firm is

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