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The Effect Of Classification Shifting On Analyst Forecast Accuracy: Evidence From Japan

Author

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  • CHAE, SOO-JOON
  • NAKANO, MAKOTO
  • 中野, 誠
Abstract
Accounting research has focused extensively on both discretionary accrual-based earnings management (DA) and real earnings management (REM). The third route of earnings management, classification shifting (CS), is a relatively new research area. First, this paper provides evidence that managers in Japan overstate operating income through classification shifting. Second, we find that analysts' forecast accuracy for operating income is reduced for firms that use frequent classification shifting to manipulate operating income upward. This paper can be helpful for regulatory agencies responsible for financial reporting quality when supervising or auditing the quality of firm's financial reporting. This paper also highlights investors' need to perform detailed reviews of firms' financial statements in their decision making.

Suggested Citation

  • Chae, Soo-Joon & Nakano, Makoto & 中野, 誠, 2015. "The Effect Of Classification Shifting On Analyst Forecast Accuracy: Evidence From Japan," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 49(1), pages 25-35, October.
    • Handle: RePEc:hit:hitjcm:v:49:y:2015:i:1:p:25-35
    DOI: 10.15057/27537
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    References listed on IDEAS

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    3. Roychowdhury, Sugata, 2006. "Earnings management through real activities manipulation," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 335-370, December.
    4. Scott Richardson & Siew Hong Teoh & Peter D. Wysocki, 2004. "The Walk†down to Beatable Analyst Forecasts: The Role of Equity Issuance and Insider Trading Incentives," Contemporary Accounting Research, John Wiley & Sons, vol. 21(4), pages 885-924, December.
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    Cited by:

    1. Shanshan Pan & Michael Lacina & Haeyoung Shin, 2019. "Income Classification Shifting and Financial Analysts’ Forecasts," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(02), pages 1-48, June.

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    More about this item

    Keywords

    classification shifting; earnings management; analyst forecast;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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