Cash from operations and earnings management: K-S model test

Subject Areas : Management Accounting

حمید رضا بزاززاده ¹ , منصور دهقان ²

1 - مکاتبه کننده
2 - ندارد

Received: 2011-05-03 Accepted : 2011-07-26 Published : 2011-09-23

Keywords: earnings management, Cash from operations, Accruals Discretionary, accruals, Non-Discretionary Accruals, KS model,

Abstract :

In this research, by studying the relationship between cash flows of operations andaccruals, discretionary accrual balances, and changed discretionary accrual balances(measured by K-S model) we investigate the existence of earnings management in thefirms of TSE (Tehran Stock Exchange). In this study, we sample 591 year-firm,consisting of 197 firms during 1385 year to 1387 to test present research hypothesis.We categorize them regard to their cash flows into thirteen groups consist of threegroups with negative and ten groups with positive cash flows. The results ofcorrelation test indicate that in the majority of portfolios, earning management hasbeen applied. Regression model test also demonstrate that firms with betterperformance are more willing to understate their earnings. However, the earningsmanagement in positive portfolios is lower in comparison with negative ones.Furthermore, firms with poor performance are willing to overstate their earnings.