Overvaluation and the choice of alternative earnings management mechanisms

  • Badertscher B
  • 220


    Mendeley users who have this article in their library.
  • 74


    Citations of this article.


In this study I examine how the degree and duration of overvaluation affect management’s use of alternative within-GAAP earnings management, restrictions on further exploitation of within-GAAP accruals management, and subsequent non-GAAP earnings management. Further, I examine how one type of earnings management segues into another type as overvaluation persists. I present evidence that the longer the firm is overvalued, the greater is the amount of total earnings management. I also find that managers engage in accruals management in the early stages of overvaluation before moving to real transactions management, in order to sustain their overvalued equity. Finally, I find that the longer a firm is overvalued, the more likely it is to engage in one of the most egregious forms of earnings management, non-GAAP earnings management. Collectively, the results suggest that the duration of firm overvaluation is an important determinant of managements’ choice of alternative earnings management mechanisms. Keywords:

Author-supplied keywords

  • Non-GAAP earnings management
  • Sustained overvaluation
  • Within-GAAP earnings management

Get free article suggestions today

Mendeley saves you time finding and organizing research

Sign up here
Already have an account ?Sign in

Find this document

Get full text


  • Brad A. Badertscher

Cite this document

Choose a citation style from the tabs below

Save time finding and organizing research with Mendeley

Sign up for free