Detecting earnings management
Date Issued
2005
Date
2005
Author(s)
Tun-Chiao, Chang
DOI
zh-TW
Abstract
When Researchers in Taiwan deal with earnings-management-related issues, they adopt accrual- based models frequently. Especially, the Healy, DeAngelo, Jones, Modified Jones, and Industry Model are most commonly considered among these accrual-based models. However, there is no study about the fitness of these five models when they are applied to the Taiwan capital market.
This article adopts Dechow and Sloan (1995)’s methodology. We build two samples which probably lead to the type I error to access the relative specification of these five models. Also, we prepare another two samples which could give rise to the type II error to test the relative power of each model. We describe and explain the empirical results and compare them with the original Dechow and Sloan’s experiment. The conclusions we draw are as follows:
1 In the first sample, the Jones and Modified Jones Model are more seldom to lead to type I error; DeAngelo Model has the lowest specification.
2 Sample (ii) shows that all these five models cannot produce the reject frequency close to the given confidence level. This result indicates that all these models perform not well.
3 Sample (iii) demonstrates that the Modified Jones Model produces more unbiased estimators than the other four and its power curve rises most steeply. We can infer that the Modified Jones Model estimate nondiscretionary accruals better.
4 In the last sample, all five models fail to reject the null hypothesis and make the type II error. This may be the result of the too small sample size or the lack of the assumptions accrual-based models require.
Subjects
盈餘管理
裁量性應計數
模型選擇
Earnings management
Discretionary accruals
Models selection
Type
other
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