Abstract
The literature documents conflicting results regarding the influence of product market competition on earnings quality. We extend this stream of literature by incorporating competition’s effect on both the opportunities and the incentives to manage earnings. The combination of both effects results in a nonlinear relation between product market competition and earnings quality. At low competition levels, additional information associated with one more rival helps reveal earnings irregularity and deter earnings management to a larger extent than its effect on the incentives to manage earnings, suggesting a positive relation between competition and earnings quality. At high competition levels, the latter effect dominates the former. We thus predict a positive (negative) relation between competition and earnings quality at low (high) competition levels. Consistent with our hypothesis, we document an inverted U-shaped relation between earnings quality and product market competition.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
