Real earnings management and stock price crash risk: the effect of monitoring
| Model 1 | Model 2 | Model 3 | Model 4 | |
|---|---|---|---|---|
| Variables | NCSKEWt H2 | DUVOLt H2 | NCSKEWt H3 | DUVOLt H3 |
| RM_SUMt−1 | −0.067 (−0.50) | 0.079** (2.16) | 0.083*** (2.80) | 0.045*** (2.45) |
| ICA_Indext−1 | −0.009 (−0.97) | 0.000 (0.04) | ||
| (ICA_Index*RM_SUM)t−1 | 0.020 (1.08) | −0.035 (−0.92) | ||
| INSTt−1 | 1.507*** (11.42) | 0.910*** (10.88) | ||
| (INST*RM_SUM)t−1 | −0.379** (−2.10) | −0.157 (−1.41) | ||
| DTURNt−1 | 0.010 (0.23) | 0.028 (1.08) | 0.037* (0.93) | 0.048* (1.84) |
| SIGMAt−1 | 1.546** (2.36) | 0.729* (1.78) | 1.069* (1.65) | 0.381*** (0.94) |
| RETt−1 | −0.003 (−0.04) | 0.026 (0.54) | −0.030 (−0.39) | 0.005 (0.12) |
| SIZEt−1 | 0.009 (1.08) | −0.006 (−1.24) | −0.020** (−2.48) | −0.024*** (−4.46) |
| MBt−1 | 0.032*** (6.11) | 0.017*** (5.69) | 0.013*** (3.01) | 0.009*** (2.96)*** |
| LEVt−1 | −0.152*** (−3.15) | −0.107*** (−3.48) | −0.095** (−2.02) | −0.070** (−2.33) |
| ROEt−1 | 0.282*** (3.59) | 0.168*** (3.53) | 0.132* (1.73) | 0.064 (1.36) |
| NOAt−1 | 0.008 (0.60) | 0.000 (0.05) | −0.007 (−0.53) | −0.010 (−1.07) |
| OPINIONt−1 | 0.024 (0.44) | −0.005 (−0.15) | 0.041 (0.76) | 0.011*** (0.33) |
| ACCR | 0.406*** (2.83) | 0.206** (2.41) | 0.399*** (3.12) | 0.210*** (2.51) |
| Intercept | −0.846*** (−3.96) | −0.202 (−1.50) | −0.255 (−1.27) | 0.126 (0.97) |
| Year | Yes | Yes | Yes | Yes |
| Industry | Yes | Yes | Yes | Yes |
| N | 12,365 | 12,365 | 12,365 | 12,365 |
| Adjusted R2 | 0.055 | 0.059 | 0.071 | 0.074 |
| Model | 18.84*** | 21.46*** | 25.52*** | 28.69*** |
| Model 1 | Model 2 | Model 3 | Model 4 | |
|---|---|---|---|---|
| Variables | ||||
| 0.010 (0.23) | 0.028 (1.08) | 0.037* (0.93) | 0.048* (1.84) | |
| 1.546** (2.36) | 0.729* (1.78) | 1.069* (1.65) | 0.381*** (0.94) | |
| −0.003 (−0.04) | 0.026 (0.54) | −0.030 (−0.39) | 0.005 (0.12) | |
| 0.009 (1.08) | −0.006 (−1.24) | −0.020** (−2.48) | −0.024*** (−4.46) | |
| 0.032*** (6.11) | 0.017*** (5.69) | 0.013*** (3.01) | 0.009*** (2.96)*** | |
| −0.152*** (−3.15) | −0.107*** (−3.48) | −0.095** (−2.02) | −0.070** (−2.33) | |
| 0.282*** (3.59) | 0.168*** (3.53) | 0.132* (1.73) | 0.064 (1.36) | |
| 0.008 (0.60) | 0.000 (0.05) | −0.007 (−0.53) | −0.010 (−1.07) | |
| 0.024 (0.44) | −0.005 (−0.15) | 0.041 (0.76) | 0.011*** (0.33) | |
| 0.406*** (2.83) | 0.206** (2.41) | 0.399*** (3.12) | 0.210*** (2.51) | |
| −0.846*** (−3.96) | −0.202 (−1.50) | −0.255 (−1.27) | 0.126 (0.97) | |
| Yes | Yes | Yes | Yes | |
| Yes | Yes | Yes | Yes | |
| 12,365 | 12,365 | 12,365 | 12,365 | |
| Adjusted | 0.055 | 0.059 | 0.071 | 0.074 |
| Model | 18.84*** | 21.46*** | 25.52*** | 28.69*** |
Note(s): T statistics are reported in parentheses. ***, ** and * denote statistical significance at 1, 5 and 10%, respectively
Table 4 presents the effect of monitoring on the relationship between real earnings management and stock price crash risk. Models 1 and 3 use NCSKEW, and Models 2 and 4 use DUVOL as crash risk measures. Models 1 and 2 analyze the impact of adequate internal controls (ICA_Indext−1) on the association between real earnings management and stock price crash risk (H2) and Models 3 and 4 analyze the impact of the percentage of institutional ownership (INSTt−1) on the association between real earnings management and stock price crash risk (H3). All variables are defined in Appendix 2. Year and industry dichotomous controls are included in all models
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