Where do firms manage earnings?
Author(s)
Dyreng, Scott D.; Hanlon, Michelle; Maydew, Edward L.
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Despite decades of research on how, why, and when companies manage earnings, there is a paucity of evidence about the geographic location of earnings management within multinational firms. In this study, we examine where companies manage earnings using a sample of 2,067 U.S. multinational firms from 1994 to 2009. We predict and find that firms with extensive foreign operations in weak rule of law countries have more foreign earnings management than companies with subsidiaries in locations where the rule of law is strong. We also find some evidence that profitable firms with extensive tax haven subsidiaries manage earnings more than other firms and that the earnings management is concentrated in foreign income. Apart from these results, we find that most earnings management takes place in domestic income, not foreign income.
Date issued
2012-06Department
Sloan School of ManagementJournal
Review of Accounting Studies
Publisher
Springer Science + Business Media B.V.
Citation
Dyreng, Scott D., Michelle Hanlon, and Edward L. Maydew. “Where Do Firms Manage Earnings?” Review of Accounting Studies 17.3 (2012): 649–687. Web.
Version: Author's final manuscript
ISSN
1380-6653
1573-7136