Corporate Financial Reporting: Experimental Evidence and Economic Implications

Last registered on July 26, 2022

Pre-Trial

Trial Information

General Information

Title
Corporate Financial Reporting: Experimental Evidence and Economic Implications
RCT ID
AEARCTR-0009794
Initial registration date
July 25, 2022

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
July 26, 2022, 1:39 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

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Primary Investigator

Affiliation
University of Mannheim

Other Primary Investigator(s)

PI Affiliation
University of Mannheim
PI Affiliation
University of Mannheim

Additional Trial Information

Status
In development
Start date
2022-08-01
End date
2024-03-15
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
In this project, we study whether firms manage their earnings and the key drivers that influence the probability of firms conducting earnings management. Companies take various measures to achieve their earnings targets. Financial reporting regulations give firm decision makers (some) flexibility in the way they present information allowing them to manipulate figures deliberately and actively according to their own objectives. The prevalence of earnings management, however, is difficult to quantify since archival data is silent on the decision-making process. Survey methods may overcome this problem. However, given the sensitive nature of earnings management, issues such as measurement error (non-response, recall bias, social desirability bias) may arise. To elicit truthful answers to sensitive questions, we run a double list experiment (Droitcour et al., 1991) and compare the estimates of the proportion of firms that engage in earnings management to those from direct and indirect questioning.
External Link(s)

Registration Citation

Citation
Bischof, Jannis, Yuhan Liu and Davud Rostam-Afschar. 2022. "Corporate Financial Reporting: Experimental Evidence and Economic Implications." AEA RCT Registry. July 26. https://doi.org/10.1257/rct.9794
Sponsors & Partners

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Experimental Details

Interventions

Intervention(s)
Our experiment consists of two baseline lists (with/without sensitive item included), a direct question about own engagement in earnings management, and an indirect question about earnings management regarding other companies. Survey participants are randomly assigned to different groups that contain different sets of questions. In the list experiment, the respondent is only asked to provide a total number of activities that the firm engaged in from the listed activities, not which ones.
Intervention Start Date
2022-08-01
Intervention End Date
2023-01-20

Primary Outcomes

Primary Outcomes (end points)
• proportions of earnings management determined by the total number of items respondents provided from the list experiment
• economic implications (management actions, investments, hiring)
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
• time frequency of conducting earnings management from the direct question
• time frequency of conducting earnings management from the indirect question
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
Survey participants are randomly assigned to four different groups that receive different sets of questions. In the list experiment, the respondent is only asked to provide the total number of the listed items they have engaged in in the past, not which ones. The averaged value of the two mean-difference estimators is an estimation for the proportion of respondents who have managed earnings.
Experimental Design Details
Not available
Randomization Method
Randomization done by a computer through Qualtrics
Randomization Unit
Firm
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
No clusters
Sample size: planned number of observations
Approx. 1,800 questionnaires with valid responses by firm representatives
Sample size (or number of clusters) by treatment arms
Each treatment arm has 450 observations of firm representatives
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
We follow Glynn (2013) for sample-size calculations. We conduct the power calculation based on the pretested baseline lists. We sent the baseline lists to student assistants and they were told to behave as CEOs in real companies which operate in certain industries. 25 valid answers were returned. If the answers from the student assistants are representative and firm respondents do not change their behaviors when the sensitive item regarding earnings management is included in the list, 703 firm responses are needed if the goal is to achieve a half-width of 0.08 and a 5% significance level. Note that each group has equal sample size, i.e., Group 1 and Group 2 should have 352 valid responses each.
Supporting Documents and Materials

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IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number
Analysis Plan

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