| Summary: | 碩士 === 輔仁大學 === 會計學系碩士班 === 93 === This thesis examines managerial ethics with regard to managerial earnings forecast by investigating the insider trading and earnings management behaviors prior to the downward revision of managerial earnings forecasts.
First, empirical tests are performed to discriminate two competing hypotheses about the nature of overstated managerial earnings forecast－“managerial optimism hypothesis” versus “managerial opportunistic hypothesis”. The result finds that relative to non-revision firms, the downward-revision firms’ insiders have abnormal net shares selling prior to the announcement of forecast downward revision, providing support for the managerial opportunistic hypothesis. This result shows that downward-revision firms indeed misleading investors and taking advantage of their private information by selling shares of their firms’ stocks at inflated prices.
Second, this study tests whether the downward-revision firms delay the timing of downward revision by taking income-increasing abnormal accruals during prior year. The results support the earnings management hypothesis for the downward-revision firms. It is consistent with the interpretation that the management of the downward-revision firms delay the timing of downward revision by taking income-increasing abnormal accruals and cast the doubt about the credibility of management earnings forecast during previous years.
Finally, the relationship between insider trading and earnings management is evaluated to discriminate two hypotheses－“litigation avoidance hypothesis” versus “pump and dump hypothesis”. It finds that the managers of downward-revision firms manage earnings upwards after engaging abnormal net shares selling, providing support for litigation avoidance hypothesis. In contrast, the pump and dump hypothesis which suggests that earnings are managed before insider selling is not supported by the empirical results. This finding indicates that insider trading provides managers with incentives to subsequently manage earnings upward to distance their selling from the subsequent revelation of bad news and reduce the likelihood of reputation and litigation losses.
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