Classification shifting to “hide” gains

Research output: Contribution to conferencePresentationResearchpeer-review

Abstract

Conventional wisdom is that managers shift recurring expenses downwards into non-recurring losses (expense shifting) to inflate core earnings. McVay (2006) and subsequent researchers document that expense shifting is prevalent in a setting characterized by non-recurring losses that receive less attention from investors. We identify a setting where firms are more likely to engage in shifting gains upwards to sales revenues (gain shifting). We use Chinese data because non-recurring items are mainly positive and bottom-line earnings are the official profitability benchmark for new equity offerings. We find that, when regulators exclude non-recurring gains from adjusted bottom-line earnings, firms are motivated to “hide” part of non-recurring gains within sales revenues to avoid the impact of the exclusion and the resulting reduction in bottom-line earnings.
Original languageEnglish
Publication statusPublished - May 2019
EventThe 42nd Annual Congress of the European Accounting Association - Aliathon Holiday Village Hotel, Paphos, Cyprus
Duration: 29 May 201931 May 2019
Conference number: 42nd
http://www.eaa-online.org/r/?iId=FFMIHL
http://www.eaacongress.org/r/home (EAA 2019)
http://www.eaacongress.org/userfiles/EAA%202019%20Programme%20Book%20-%2024.05.19.pdf (Programme Book)

Conference

ConferenceThe 42nd Annual Congress of the European Accounting Association
Abbreviated titleEAA
CountryCyprus
CityPaphos
Period29/05/1931/05/19
OtherThe Annual Congress of the European Accounting Association is a major event that takes place in a different country during springtime each year. The EAA Annual Congress offers a unique opportunity for presenting research and finding out what colleagues in the fields of management and accounting are doing. Every year between 1.200 and 1.500 delegates attend this popular event and around 800 and 1.000 papers are presented in parallel sessions and research fora.
Internet address

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Expenses
Revenue
Benchmark
Investors
Profitability
Wisdom
Exclusion
Equity offerings
Managers

Cite this

Hu, J., Duncan, K., & Li, X. (2019). Classification shifting to “hide” gains. The 42nd Annual Congress of the European Accounting Association , Paphos, Cyprus.
Hu, Juncheng ; Duncan, Keith ; Li, Xiaorong. / Classification shifting to “hide” gains. The 42nd Annual Congress of the European Accounting Association , Paphos, Cyprus.
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abstract = "Conventional wisdom is that managers shift recurring expenses downwards into non-recurring losses (expense shifting) to inflate core earnings. McVay (2006) and subsequent researchers document that expense shifting is prevalent in a setting characterized by non-recurring losses that receive less attention from investors. We identify a setting where firms are more likely to engage in shifting gains upwards to sales revenues (gain shifting). We use Chinese data because non-recurring items are mainly positive and bottom-line earnings are the official profitability benchmark for new equity offerings. We find that, when regulators exclude non-recurring gains from adjusted bottom-line earnings, firms are motivated to “hide” part of non-recurring gains within sales revenues to avoid the impact of the exclusion and the resulting reduction in bottom-line earnings.",
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Hu, J, Duncan, K & Li, X 2019, 'Classification shifting to “hide” gains' The 42nd Annual Congress of the European Accounting Association , Paphos, Cyprus, 29/05/19 - 31/05/19, .

Classification shifting to “hide” gains. / Hu, Juncheng; Duncan, Keith; Li, Xiaorong.

2019. The 42nd Annual Congress of the European Accounting Association , Paphos, Cyprus.

Research output: Contribution to conferencePresentationResearchpeer-review

TY - CONF

T1 - Classification shifting to “hide” gains

AU - Hu, Juncheng

AU - Duncan, Keith

AU - Li, Xiaorong

PY - 2019/5

Y1 - 2019/5

N2 - Conventional wisdom is that managers shift recurring expenses downwards into non-recurring losses (expense shifting) to inflate core earnings. McVay (2006) and subsequent researchers document that expense shifting is prevalent in a setting characterized by non-recurring losses that receive less attention from investors. We identify a setting where firms are more likely to engage in shifting gains upwards to sales revenues (gain shifting). We use Chinese data because non-recurring items are mainly positive and bottom-line earnings are the official profitability benchmark for new equity offerings. We find that, when regulators exclude non-recurring gains from adjusted bottom-line earnings, firms are motivated to “hide” part of non-recurring gains within sales revenues to avoid the impact of the exclusion and the resulting reduction in bottom-line earnings.

AB - Conventional wisdom is that managers shift recurring expenses downwards into non-recurring losses (expense shifting) to inflate core earnings. McVay (2006) and subsequent researchers document that expense shifting is prevalent in a setting characterized by non-recurring losses that receive less attention from investors. We identify a setting where firms are more likely to engage in shifting gains upwards to sales revenues (gain shifting). We use Chinese data because non-recurring items are mainly positive and bottom-line earnings are the official profitability benchmark for new equity offerings. We find that, when regulators exclude non-recurring gains from adjusted bottom-line earnings, firms are motivated to “hide” part of non-recurring gains within sales revenues to avoid the impact of the exclusion and the resulting reduction in bottom-line earnings.

M3 - Presentation

ER -

Hu J, Duncan K, Li X. Classification shifting to “hide” gains. 2019. The 42nd Annual Congress of the European Accounting Association , Paphos, Cyprus.