Classification Shifting in the Income-Decreasing Discretionary Accrual Firms

Humeyra Adiguzel


This study investigates whether managers use classification shifting to classify operating expenses as non-operating. Using a methodology similar to McVay (2006), I find no evidence of classification shifting between operating and non-operating expenses. However, I find evidence that managers classify operating expenses as non-operating in the absence of income decreasing accrual management. This finding can be explained that income-decreasing accrual management both affects operating and non-operating expenses and measuring classification shifting without considering discretionary accrual management produces meaningless results.

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International Journal of Financial Research
ISSN 1923-4023(Print)ISSN 1923-4031(Online)


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