The Effect Of Investment Opportunity Set On The Association Between Incentives And Earnings Management Level

Abstract

The objective of this research is to investigate the effect of investment opportunity set on the association between managers’ incentives to manage earnings and the level of earnings management. The incentives to engage in earnings management in this research measured by ï¬nancial leverage level. ï¬rm’s size, and public ownership or ï¬rm‘s common stock. Discretionary accrual is used to measure level of earnings management. Result show that there are positive discretionary accruals and evidence support argument that the liigher of investment opportunity set the greater positive effect of ï¬nancial leverage and public ownership on the level of carnmgs management. Manager of firms with relatively more investment opportunity set would have wider opportunity or more discretion to manage reported earnings.

Keywords: Earnings management, investment opportunity set, information asytnmetry.