Although researchers often view earnings management as being widespread, measuring the cost and level of earnings management is a non-trivial task. We derive a measure of earnings management cost and the associated equilibrium level of earnings management from the cross-sectional properties of...

We derive a measure of earnings management cost and the associated equilibrium level of earnings management from the cross-sectional properties of earnings and prices. This approach enables us to separate economic shocks from reporting discretion by modeling the economic trade-off faced by...