In the Empirical Research on Earnings Manipulation Discussed in the Chapter,a

question 44

Essay

In the empirical research on earnings manipulation discussed in the chapter,a number of firm characteristics are found to be associated with the likelihood of engaging in earnings manipulation.For each of the characteristics listed below,discuss the rationale for their inclusion in the model:
a.Gross Margin Index
b.Asset Quality Index
c.Sales Growth Index
d.Depreciation Index
e.Leverage Index

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Definitions:

Effective Tax Rate

The average rate at which an individual or corporation is taxed, calculated by dividing the total tax paid by the taxable income.

Bond Premium

The amount by which the market price of a bond exceeds its face value.

Goodwill Impairment

A decrease in the value of goodwill, which occurs when the carrying amount of a company's goodwill exceeds its fair value.

Consolidated Net Income

The total net income of a parent company and its subsidiaries after intercompany transactions have been eliminated.