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

 
2007 Annual International CHRIE Conference & Exposition 
480
Mohanram, P. (2003). How to manger earnings management? 
Accounting World
, Oct: 13-19. 
Rangan, S. (1998). Earnings management and the performance of seasoned equity offers. 
Journal of Financial
Economics
, 50: 101-122. 
Richardson, V. (2000). Information asymmetry and earnings management: some evidence. 
Review of Quantitative
Finance and Accounting
, 15: 325-347. 
Sloan, R. (1996). Do stock prices fully reflect information in accruals and cash flows about future earnings? 
The
Accounting Review
, 71: 289-315. 
Teoh, S. H., Welch, I. and Wong, T.J. (1998). Earnings management and the underperformance of seasoned equity
offerings. 
Journal of Financial Economics, 
50: 63-99 
Trueman, B. and Titman, S. (1988). An explanation for income smoothing. 
Journal of Accounting Research
, 26:
127-139. 
Warfield, T., Wild, J. and Wild, K. Managerial ownership, accounting choices and informativeness of earnings.
Journal of Accounting and Economics
, 20: 61-91. 
Wiedman, C. (1998). Instructional case: detecting earnings manipulation.
Issues in Accounting Education,
14:
145-166. 
APPENDIX 
We utilize an earnings manipulation detection model employed by Beneish (1999a). 
M
j
= 
β
’X
i
+ 
ε
i
where M is a dichotomous variable with1 representing manipulating firms, 0 otherwise; 
X is a matrix of explanatory variables described below 
ε
i
is the residual term. 
The variables along with their Compustat item numbers are shown in the table below. 
Variable Calculation 
[Compustat 
item 
number] 
Days’ Sales in
Receivable Index 
Receivables
t
[2]/Sales
t
[12] 
Receivables
t-1
/Sales
t-1
Gross Margin Index 
Sales
t-1
[12]-Cost of Goods Sold
t-1
[41]/Sales
t-1
[12] 
Sales
t
[12]-Cost of Goods Sold
t
[41]/Sales
t
[12] 
Asset Quality Index 
1-Current Assets
t
[4] + PP&E[8]/Total Assets
t
[6] 
1-Current Assets
t-1
+ PP&E
t-1
/Total Assets
t-1
Sales Growth Index 
Sales
t
[12] 
Sales
t-1
Depreciation Index 
Depreciation
t-1
[14-65]/Depreciation
t-1
+ PP&E
t-1
[8] 
Depreciation
t
/(Depreciation
t
+ PP&E
t
) 
Sales, General & 
Administrative Expenses 
Index 
S,G & A Expense
t
[189]/Sales
t
[12] 
S,G & A Expense
t-1
/Sales
t-1
Leverage Index 
(LTD
t
[9] + Current Liabilities
t
[5])/Total Assets
t
[6] 
(LTD
t-1
+ Current Liabilities
t-1
)/Total Assets
t-1
Total Accruals to Total 
Assets 
∆
Current Assets
t
[4]- 
∆
Cash
t
[1] -
∆
Current Liabilities
t
[5] 
-
∆
Current Maturities of LTD
t
[44]-
∆
Income Tax Payable
t
[71] 
-Depreciation and Amortization
t
[14] 
Total Assets [6] 
These variables were obtained from Compustat for U.S. restaurant firms for the years 1980 through 2005. 

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