Enhancing and Updating Cohen, Dey, and Lys’s (2008) Methodological Framework to Re-Examine the Relation between Accrual-Based and Real Earnings Management After SOX

We respond to and rebut a number of comments in Daniel Cohen and Thomas Lys’s commentary (2022, this issue) (hereinafter CL) on our paper (Pincus, Wu, and Hwang, 2022, this issue), which re-examines and extends the research in Cohen, Dey, and Lys (2008) (hereinafter CDL). Specifically, we rebut most of the claims CL make regarding the lack of a conceptual framework and research design limitations, and we clarify CL’s misinterpretation on the inconsistency between our findings and prior published work. CL argue for the need to adjust the methodology that CDL employed, but fail to acknowledge the enhancements we made to CDL’s methodological framework, which enabled us to separate the substitution effects associated with the pre-SOX and post-SOX periods