Impact of product market competition on real activity manipulation: Moderating role of managerial ability

In this study, we examine whether managerial ability moderates the association between product market competition and real earnings management. Prior literature largely supports the disciplinary effect of competition, suggesting that competition reduces real activity manipulation. We argue that this...

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Bibliographic Details
Published inAccounting and finance (Parkville) Vol. 63; no. 1; pp. 247 - 275
Main Authors Biswas, Pallab Kumar, Ranasinghe, Dinithi, Tan, Eric K. M.
Format Journal Article
LanguageEnglish
Published Clayton Blackwell Publishing Ltd 01.03.2023
Subjects
Competition
earnings benchmarks
Earnings management
managerial ability
Managerial skills
product market competition
real activity manipulation
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Summary:In this study, we examine whether managerial ability moderates the association between product market competition and real earnings management. Prior literature largely supports the disciplinary effect of competition, suggesting that competition reduces real activity manipulation. We argue that this association is different depending on the level of managerial ability. Based on the reputation hypothesis, we argue that able managers negatively moderate the association between competition and real activity manipulation. Using a sample of US listed companies from 1997 to 2016, we find evidence to support our moderating assertion. A battery of robustness tests validates our original findings.
ISSN:0810-5391
1467-629X
DOI:10.1111/acfi.13040