CEOs and Earnings Management: the Distributional Anomalies of Discretionary Accruals in Post-SOX Era

Abstract

This thesis examines anomalies related to the discretionary accruals usage during the tenures of CEOs in listed U.S. companies since the implementation of Sarbanes-Oxley Act.

The approach used in this thesis is quantitative in nature. Four well-known discretionary accruals models: Healy model, DeAngelo model, Jones model and modified Jones are used in to separate discretionary accruals from the total accruals. The sample consists of financial and executive data of listed U.S. companies between the years 2003-2013.

The results of this study strongly support the idea that income-increasing accruals are used in the final year of the average CEO’s tenure. Furthermore, support for the usage of income-increasing discretionary accruals during the early years of CEO’s tenure was found. In addition, in the transition year between two CEOs, weak evidence for the downwards management of discretionary accruals was observed.