Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/21520
Title: Earnings management, surplus free cash flow, and external monitoring
Authors: Chung, R
Firth, M
Kim, JB
Keywords: Audit quality
Earnings management
External monitoring
Institutional shareholdings
Surplus free cash flow
Issue Date: 2005
Publisher: Elsevier
Source: Journal of business research, 2005, v. 58, no. 6, p. 766-776 How to cite?
Journal: Journal of business research 
Abstract: Managers engage in earnings management for various reasons. We argue that low-growth companies with high free cash flow (SFCF) will use income-increasing discretionary accruals (DAC) to offset the low or negative earnings that inevitably accompany investments with negative net present values (NPVs). Our results, using 22,576 company year observations over the period 1984-1996, confirm our hypothesis. We also examine the role of high-quality auditors and institutional shareholders in mitigating the SFCF-DAC relation. Our results show that Big 6 auditors and institutional investors with substantial shareholdings moderate the SFCF-DAC relation, which suggests that external monitoring by these two outside stakeholders is effective in deterring managers' opportunistic earnings management.
URI: http://hdl.handle.net/10397/21520
ISSN: 0148-2963
EISSN: 1873-7978
DOI: 10.1016/j.jbusres.2003.12.002
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