Please use this identifier to cite or link to this item: https://hdl.handle.net/1959.11/11446
Title: Reexamine "Cookie Jar" and "Big Bath" Accounting Using the Backing-Out Method
Contributor(s): Sun, Lan  (author)
Publication Date: 2012
Handle Link: https://hdl.handle.net/1959.11/11446
Abstract: Prior research documents income-decreasing earnings management in the situation when true earnings exceed the targets by a substantial amount and in the situation when true earnings fall far below the targets and accounting reserves are not sufficient to reach the targets. These two situations are well known as cookie jar and big bath earnings management. True earnings are defined as pre-managed earnings (PMEs) and are measured as reported earnings minus adjusted discretionary accruals (DAs). However, the use of PMEs can induce a spurious association between earnings management and PMEs above or below the benchmarks, which are known as the backing-out problem (Lim & Lustgarten, 2002). This study reexamines the cookie jar and big bath type of earnings management and addresses in particular the issue of backing-out problem. By using an Australian sample of 3,326 observations covering all listed firms in the Australian Securities Exchange (ASX) for a period from 1999 to 2006, this study suggests that the finding of cookie jar accounting is not simply a consequence of the backing-out problem. The results show that an income-decreasing earnings management occurs when PMEs are well above the targets. This is consistent with the first argument of cookie jar accounting - Firms reduce current earnings in order to save some income for the future. However, the results do not support the big bath accounting theory.
Publication Type: Journal Article
Source of Publication: Journal of Modern Accounting and Auditing, 8(9), p. 1272-1282
Publisher: David Publishing Co., Inc
Place of Publication: United States of America
ISSN: 1935-9683
1548-6583
Fields of Research (FoR) 2008: 150303 Corporate Governance and Stakeholder Engagement
150202 Financial Econometrics
150201 Finance
Fields of Research (FoR) 2020: 350203 Financial econometrics
350701 Corporate governance
Socio-Economic Objective (SEO) 2008: 910106 Income Distribution
900101 Finance Services
Socio-Economic Objective (SEO) 2020: 150206 Income distribution
110201 Finance services
Peer Reviewed: Yes
HERDC Category Description: C1 Refereed Article in a Scholarly Journal
Appears in Collections:Journal Article
UNE Business School

Files in This Item:
2 files
File Description SizeFormat 
Show full item record

Page view(s)

1,596
checked on Apr 7, 2024
Google Media

Google ScholarTM

Check


Items in Research UNE are protected by copyright, with all rights reserved, unless otherwise indicated.