مدیریت سود واقعی و عدم تقارن اطلاعات در بازار سهام Real Earnings Management and Information Asymmetry in the Equity Market

1. Introduction Earnings management occurs when managers use their discretion in the financial reporting process and in structuring transactions to misrepresent the true economic performance of the company (Dechow & Skinner, 2000; Healy & Wahlen, 1999). Firms can manage earnings through two types of activities: accrual-based activities and real activities manipulation. While accrual-earnings management implies discretionary choices permitted within accounting standards and with no direct cash flow consequences, real earnings management (hereinafter REM) involves deviations from normal operational practices to manipulate earnings numbers, with direct consequences for current and future firm cash flows. In this paper, we are interested in investigating the association between REM and the level of information asymmetry in the stock market. Although earnings management activities may be informative, most research adopts the opportunistic perspective, and assumes that managers try to mislead stakeholders. According to this view, earnings management reduces earnings quality and garbles the information provided by financial statements. Consequently, as Bhattacharya, Desai, and Venkataraman (2013) hypothesize, based on the model of Kim and Verrecchia (1994), if investors differ in their ability to process earnings-related information, then poor earnings quality can lead to differentially informed investors, so exacerbating the information asymmetry in financial markets. Consistent with this hypothesis, empirical evidence shows that accrual-based earnings management is associated with higher information asymmetry and reductions in market liquidity, leading to a higher cost of capital (e.g. Bhattacharya et al., 2013; Jayaraman, 2008; Rajgopal & Venkatachalam, 2011). Research has analyzed the association between earnings management (or earnings quality) and the firm’s information environment, with the focus mainly on accrual-based earnings management. Nevertheless, there is little evidence for the effect of REM on the adverse selection problem in financial markets. Since earnings management through real activities manipulation distorts earnings and cash flows, REM strategies may imply lower earnings quality, as manipulated earnings numbers hinder the evaluation and assessment of the true firm’s current performance and the expected level of future cash flows by investors. Hence, a positive association of REM with information asymmetry could be expected. Moreover, since REM is less subject to external monitoring and scrutiny by board, auditors and regulators than accruals earnings management (Cohen & Zarowin, 2010), and its implications for firm future performance are not clear (e.g. Graham, Harvey, & Rajgopal, 2005; Gunny, 2010), it may be difficult to understand by capital markets (Kothari, Mizik, & Roychowdhury, 2016) and thus, it may contribute to increase the informational asymmetry problem. As Gunny (2010) states, it is complicated to determine whether managers use REM opportunistically to the detriment of shareholders or, on the contrary, they use REM to signal future performance or to attain benefits that will allow the firm to perform better in the future. Hence, REM could increase the uncertainty of investors about the distribution of firm’s future cash flows, and, in this case, traders who have better information-processing abilities could take advantage of their superior assessments of firm performance. In addition, since it is difficult to distinguish sub-optimal from optimal business decisions, the opacity of REM activities could lead some investors to engage in acquisition of private information with the aim of exploiting it and obtaining profits from trading on the market. For all these reasons, we expect REM strategies to exacerbate information asymmetry among investors in stock markets.