Earnings Management Prior to Delisting

• In Event: Financial Accounting & Reporting 1
  In Paper Session: Financial Accounting & Reporting I

Abstract

While the decision to go public may be the most important choice in the life of a firm, the decision to delist may rank a close second. Surprisingly, this potent course of action is far less studied though it is of utmost interest to management, investors and creditors of the affected firms. Firms that voluntarily delist have considered the pros and cons and moved forward accordingly while firms that involuntarily delist are faced with substantial consequences for which they may not be prepared. We investigate whether a pending delisting is a potential incentive for earnings management - specifically, whether firms that delist from a major stock exchange manage earnings using discretionary accruals in the year prior to delisting. Our results suggest that involuntarily delisted firms engage in earnings management prior to delisting and use more positive discretionary accruals to boost their reported earnings than do voluntarily delisted firms.

Authors

• Linxiao Liu, University of West Georgia

• Kasey A Martin, Texas State University–San Marcos

• Linda Campbell, Texas State University–San Marcos