Effects of Earnings Management on Both Existing and Potential Investors Decision - Literature review Example

The paper “Effects of Earnings Management on Both Existing and Potential Investors’ Decision” is an inspiring example of a finance & accounting literature review. The study target is about examining how earnings management expectation can affect investors’ decision to invest in an entity. Secondly, the study aims at showing the effects of earning management on the share price. It is indeed true that the effects of earnings management on potential investors cannot be observed, thus a proxy for the actions of potential investors needs to be identified. These actions can include abnormal trading volume around earnings announcements. The reviews below will chiefly focus on seven thematic areas.

The first area of concern would be to dissect if earning management exists, what motives drive earning management, which accruals appear to be managed, the magnitude and frequency or earnings management, what are the economic consequences or earning management, theoretical concepts and finally, this chapter will explore the best practices and legal frameworks advanced in order to curtail the vice. In addition to explaining the legal frameworks, the chapter will explore the costs of the same frameworks. Lastly, the subsequent chapters will comprehensively review the literature on account manipulation in the U.S, U.K, Canada, France, and other countries in order to emphatically display a vivid picture of the proposed structure of analysis above.

1. Introduction
A rational investor would wish o place his/ her bets in a well-performing sector of the economy or industry. The one major character of investors is the ability to be speculative. Being speculative entails the capability of being able to strategically position oneself with the aid of market trends and trading information from previous financial years. Earning management exists and it occurs for various reasons. The reasons include predetermining capital market expectations and valuation, increasing management’s compensation, avoiding violating contracts written in terms of accounting numbers, and reducing regulatory costs.