Author Identifier (ORCID)

Nadar Atawnah

ORCID : 0000-0001-9403-0056

Abstract

We examine the impact of corporate risk-taking on firm-level real earnings management. We find that firms with higher risk-taking engage in higher real earnings management. Our results are robust to a series of robustness tests, including simultaneous least squares approach, firm fixed effect, change analysis, and pseudo difference-in-difference analysis. Additional analyses reveal that the impact of risk-taking on real earnings management is more pronounced among firms that experience prior-year loss and are run by top-echelons who are risk lovers. Sarbanes-Oxley Act (SOX) regulation does not attenuate the positive effect of risk-taking on real earnings management. However, external monitoring by institutional investors and takeover susceptibility curb the relation between risk-taking and real earnings management. Our study highlights that outsider, such as investors and regulators, should pay close attention to a firm’s risk-taking behavior to unravel the extent of real earnings management in the firm.

Document Type

Journal Article

Date of Publication

2021

Volume

9

Issue

4

Publication Title

International Journal of Financial Studies

Publisher

MDPI

School

School of Business and Law

RAS ID

36975

Creative Commons License

Creative Commons Attribution 4.0 License
This work is licensed under a Creative Commons Attribution 4.0 License.

Comments

Alharbi, S., Al Mamun, M., & Atawnah, N. (2021). Uncovering real earnings management: Pay attention to risk-taking behavior. International Journal of Financial Studies, 9(4), article 53. https://doi.org/10.3390/ijfs9040053

Share

 
COinS
 

Link to publisher version (DOI)

10.3390/ijfs9040053