Review of Quantitative Finance and Accounting

, Volume 30, Issue 1, pp 69–92 | Cite as

Firm diversification and earnings management: evidence from seasoned equity offerings

  • Chee Yeow Lim
  • Tiong Yang Thong
  • David K. Ding
Original Paper


Popular press suggests that diversified firms are more aggressive in managing earnings than non-diversified firms. We examine this claim in the seasoned equity offering (SEO) setting, where firms have been shown to have the incentive to manage earnings upwards. Using the cross-sectional modified Jones [(1991) J Accounting Res 29:193–228] model to measure discretionary current accruals, we find that discretionary current accruals are higher among diversified firms than in non-diversified ones. Our evidence is consistent with the view that the extent of firm diversification is directly related to the degree of earnings management. We further show that diversified issuers with high discretionary accruals underperformed other SEO firms.


Seasoned equity offerings Corporate diversification Earnings management Accruals Stock market performance 

JEL Classifications

G32 G34 M41 



The authors gratefully acknowledge the helpful suggestions and comments on previous versions of the paper by Jay Ritter, Hun-Tong Tan, Huai Zhang, Divesh Shankar Sharma, and seminar participants at the Nanyang Business School’s Faculty Workshop.


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Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  • Chee Yeow Lim
    • 1
  • Tiong Yang Thong
    • 2
  • David K. Ding
    • 3
  1. 1.Nanyang Business SchoolNanyang Technological UniversitySingaporeSingapore
  2. 2.School of BusinessSIM UniversitySingaporeSingapore
  3. 3.Department of Finance, Lee Kong Chian School of BusinessSingapore Management UniversitySingaporeSingapore

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