Research and Development and Earnings Management. An Empirical Analysis of Analysts’ Reactions during Conference Calls

Bachelor Thesis , 2015 , 58 Pages , Grade: 1,0

Business economics - Investment and Finance

This study is an attempt to combine two important streams of accounting research: The problem of earnings management (hereafter EM) and the role of conference calls (hereafter CCs) as disclosure medium. In doing so, I focus on real activities manipulation (hereafter RM) through cutting R&D expenses. I contribute to the existing literature by answering two questions: Firstly, whether the risk of managers engaging in RM via R&D spending affects the probability of analysts, or management addressing those cuts during CCs. Secondly, if the analyst community benefits from such discussions, by obtaining useful information, not accessible via other information channels. To answer these questions, I examine the 4th quarter earnings conference call transcripts of 300 firm years with an increased RM risk. I use content analysis to measure analysts’ and managers’ reactions, and create dummy variables that contain the information found.

Table of content

1. Introduction

2. Literature Review
2.1. Literature on real activities manipulation
2.2. Literature on the information content of Conference Calls

3. Hypotheses Development
3.1. Discussions and inquiries about R&D cuts during Conference Calls
3.2. The information content of Conference Calls with regard to R&D cuts

4. Sample Selection

5. Definition of Variables
5.1. Variables for assessing the probabilities of inquiries and discussions
5.1.1. Definition of inquiries and discussion about R&D cuts
5.1.2. Definition of control variables
5.2. Variables for measuring the information content of R&D cuts
5.2.1. Definition of proxies for information content
5.2.2. Definition of control variables

6. Test Design
6.1. Regression models analyzing inquiries and discussions about R&D cuts
6.2. Regression models analyzing the information content of R&D cuts

7. Descriptive Statistics
7.1. Summary Statistics
7.2. Correlation Matrix

8. Results
8.1. The effect of real activities manipulation on inquiries about R&D cuts
8.2. The effect of real activities manipulation on discussions about R&D cuts
8.3. The information content of inquiries
8.4. The information content of discussing R&D cuts

9. Summary and Conclusion

Appendix

References:

• College: LMU Munich (Instituts für Rechnungswesen und Wirtschaftsprüfung)
• Grade: 1,0
• Author: Julian Kasturiarachchige (Author)
• Publication Year: 2015
• Pages: 58
• Catalog Number: V369388
• ISBN (eBook): 9783668486553
• ISBN (Book): 9783668486560
• Language: English
• Tags: F&E, F & E, R&D, R & D, Forschung, Entwicklung, Research, Development, Kosten, costs, empirisch, empirical, regression, analyse, analysis, conference call, Telefonkonferenz, earnings, management, Bilanzpolitik, Sachverhaltsgestaltung, Quartal, Quarterly, GuV, Gewinn- und Verlustrechnung, Bilanz, P&L, Profit, loss, income statement, balance sheet, analyst, Finanzanalyst, financial analyst, mean analyst forecast, forecast, Informationsgehalt, Quartalszahlen, informational content, Reporting, Kürzung, cuts, Risikomessung, Jahresabschluss, Jahresergebnis, Anreiz, forecast error, expenses, operating expenses, opex, cogs, costs of goods sold, earnings surprise, Tobin's Q, return on assets, RoA, logistisch, logistic, forecast dispersion, real activities manipulation, earnings management