The joint decision to manage earnings through discretionary accruals and asset sales around insider trading: Taiwan evidence |
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Authors: | Chih-Jen Huang |
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Institution: | (1) Department of Finance, Providence University, 200 Chung-Chi Rd., Shalu, Taichung County, Taiwan |
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Abstract: | This study assesses the joint decision of multiple earnings–management tools around insider trading. The Taiwanese evidence
indicates significantly higher magnitudes of both discretionary accruals and asset sales before insider selling. In addition,
to investigate the endogenous relationship between discretionary accruals and asset sales, this study develops a set of simultaneous
equations and includes the inverse Mill’s ratio as a regressor to account for firms that choose not to use asset sales. The
results indicate a marginal complementary correlation between discretionary accruals and asset sales before insider selling.
Further tests find this complementary correlation becomes stronger when accompanying abnormal insider selling. The findings
support the view that insiders consider both tools jointly and adjust them as complements to meet their directional earnings
management objective. |
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Keywords: | |
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