Abstract
We develop and test three possible hypotheses to explain motivations for earnings management. These hypotheses are opportunism, signaling and smoothing. We examine the patterns of insider trading associated with earnings management. Our main findings are: (1) the buying trades of insiders decrease in frequency relative to selling trades as earnings are managed upwards, (2) after controlling for size, the trading pattern of insiders still holds and (3) when partitioning the sample on past returns, the trading pattern is still present within categories of past returns. These results are consistent with the opportunism hypothesis for earnings management.
| Original language | English |
|---|---|
| Journal | Journal of Accounting and Finance |
| Volume | 13 |
| Issue number | 3 |
| State | Published - Oct 2013 |