I am doing my thesis where I look at overall level of both accruals and relative earnings management. Followed by I look at substitution between the two. I have gone through several studies but still aren't sure on the sign of the AEM. So for AEM I believe the higher the magnitude the greater the AEM so a + sign.
Given substitution between the two I believe I should see negative sign for both AEM and REM.
If anyone could clarify on the following would be helpful.
You may want to read the following paper to help you out:
Evidence on the trade-off between real activities manipulation and accrual-based earnings management
AY Zang - The accounting review, 2012 - meridian.allenpress.com
Accrued earnings management can be both positive and negative. It is better to use the absolute value of accruals to measure it.
According to research, managers who can not use accruals under a strong internal control system manage their profits by managing real profits.
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