One of the goals of the Sarbanes-Oxley Act (hereafter SOX) was to restore confidence in financial reporting by providing incentive for firms to report financial results that reflect the underlying economic performance. Early findings are inconclusive on the success of the Act. Cohen, Dey and Lys...

Using publicly available data from annual reports, we find that SEC rule changes (33-8128 and 33-8644) that impose time pressure on the audits of registered firms have a negative impact on earnings quality, which we interpret as evidence of lower audit quality. Consistent with our predictions,...

This paper examines how one aspect of earnings quality - discretionary accruals - affects subsequent capital investment pattern and efficiency. We find that, conditional on investment opportunities, investment in fixed assets in period t is less sensitive to internal cash flows for firms with...

This study examines the ability of revenue and accrual models to detect simulated and actual earnings management. The results indicate that revenue models are less biased, better specified, and more powerful than commonly used accrual models. Using a simulation procedure, I find that revenue...

Mandatory audit partner rotation has been adopted in certain countries while audit firm rotation is still being debated in many places. Most of the extant research on the relation between auditor tenure and earnings quality provides evidence at the audit firm level. However, since audit firm...

This paper examines the implications of using the absolute value of discretionary accruals when testing for earnings management. First, we analytically develop the mean and variance of the distribution of absolute discretionary accruals, and show that the expected value is an increasing function...

This paper evaluates the implications of nondiscretionary accruals for earnings management and market-based accounting research. We develop a simple model in which earnings management is absent and nondiscretionary accruals perform their intended function of insulating earnings from non-cash...

This study investigates whether accrual quality, earnings persistence and earnings predictive ability are affected by the adequacy rather than the strength of corporate governance. Under the premise that firms that have consistently outperformed their industry counterparts in the past have less...

Mandatory audit partner rotation has been adopted in certain countries while audit firm rotation is still being debated in many places. Most of the extant research on the relation between auditor tenure and earnings quality provides evidence at the audit firm level. However, since audit firm...

Earnings management is a key issue for financial reporting. The purpose of this paper is to derive a set of indices to measure the pervasiveness of earnings management (PEM) using the properties of quarterly accrual volatility. The PEM index can be viewed as a quality measure of financial...