Microsoft Word 2007 ichrie conference Proceedings Final-Final 06-06-07. doc

RESULTS 
Regression Analysis
The paper proceeded in two ways to evaluate the presence of significant discretionary accruals or earnings 
management. The first of which is to create a dummy variable (REC) for recession years and regress total accruals 
on REV, PPE, 1/A, recession related dummy variables (REC). It was a test for significance of the coefficient for 
REC to evaluate the presence of earnings management. The second step we conducted was to regress total accruals 
on REV, PPE, 1/A, and firm related dummy variables to obtain residuals. These residuals will represent 
discretionary accruals. The residuals from recession and non-recession years will then be compared by means of a t-
test to evaluate the presence of earnings management.
The preliminary analysis began with graphing total accruals and current accruals versus each of the 
independent variables. Immediately, potential outlier problems were identified from graphs of total accruals versus 
inverse assets (1/Asset t-1). Not only were these points associated with high leverage and studentized residuals with 
magnitude greater than eight, they had Cook’s Distances of well over the generally accepted value of one. It was 

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