Enhancing and Updating Cohen, Dey, and Lys’s (2008) Methodological Framework to Re-Examine the Relation between Accrual-Based and Real Earnings Management after SOX

Abstract

ABSTRACT We respond to and rebut a number of comments in Daniel Cohen and Thomas Lys’s commentary (Cohen and Lys 2022) on our paper (Pincus et al. 2022), which re-examines and extends the research in Cohen, Dey, and Lys (2008), “(hereinafter CDL)”. Specifically, we rebut most of the claims Cohen and Lys (2022) make regarding the lack of a conceptual framework and research design limitations and clarify Cohen and Lys's (2022) misinterpretation on the inconsistency between our findings and prior published work. Cohen and Lys (2022) argue for the need to adjust the methodology that Cohen et al. (2008) employed but fail to acknowledge the enhancements we made to Cohen et al. (2008) methodological framework, which enabled us to separate the substitution effects associated with the pre-SOX and post-SOX periods.