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This study predicts and documents differential roles for RD investors also overvalue low discretionary SG&A and high discretionary R&D during manipulation years. These results highlight the importance of separating R&D… Click to show full abstract
This study predicts and documents differential roles for RD investors also overvalue low discretionary SG&A and high discretionary R&D during manipulation years. These results highlight the importance of separating R&D and SG&A in analyzing firms’ real earnings management decisions. While cutting SG&A inflates earnings and stock prices, and thus is considered a feasible earnings management tool, cutting R&D is not a viable option when managers desire to signal growth and maintain high stock market valuations.
Journal Title: Contemporary Accounting Research
Year Published: 2021
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