Deregulation and earnings management: The case of the US airline industry

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This paper examines earnings management dynamics in the airline industry during the airline industry deregulation of 1978. We expect that earnings management would increase after deregulation, since industry deregulation generally increases managerial discretion, whereas internal corporate governance systems are sluggish in adapting to newly changed environments. As corporate governance structures become more effective in tempering highly discretionary managers, and as capital markets learn more about how to design better management incentive systems, managers' incentives and capacity to engage in earnings management will diminish. Based on industry data, we find that the magnitude of absolute values of discretionary accruals increase significantly in the post-deregulation period. Managers in the airline industry were inclined to engage in income increasing earnings management after deregulation. However, the increased level of earnings management then decreased to return close to the level seen during the regulation period. The findings support the predicted deregulation impact on earnings management dynamics. (C) 2011 Elsevier Inc. All rights reserved.
Publisher
ELSEVIER SCIENCE INC
Issue Date
2011
Language
English
Article Type
Article
Keywords

CORPORATE GOVERNANCE; ACQUIRING FIRMS; AUDIT COMMITTEE; ACCRUALS; OWNERSHIP; STOCK; BOARD; COMPENSATION; MANIPULATION; PERFORMANCE

Citation

JOURNAL OF ACCOUNTING AND PUBLIC POLICY, v.30, no.6, pp.589 - 606

ISSN
0278-4254
DOI
10.1016/j.jaccpubpol.2011.08.006
URI
http://hdl.handle.net/10203/98570
Appears in Collection
MT-Journal Papers(저널논문)
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