What motivates manager's choice of discretionary accruals?

Victor L. Bernard Douglas J. Skinner

Abstract
The papers by Subramanyam (1996) and Kasanen, Kinnunen, and Niskanen (KKN, 1996) both consider why managers manipulate accounting accruals, Subramanyam finds that discreationary accruals are associated with several performance measures, and concludes that managers' accrual choices increase the informativeness of accounting earning. However, a strong competing alternative is that the 'Jones model' systematically mismeasures discreationary accruals, so that they contain a significant non-discreationary component. Unlike many US studies, KKN find strong evidence of earnings management in Finland, where Finnish managers set earnings to satisfy the demand for dividends by keiretsu-like institutional investors.

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