WHAT MOTIVATES MANAGERS CHOICE OF DISCRETIONARY ACCRUALS

The papers by Subramanyam (1996) and Kasanen, Kinnunen, and Niskanen ( KKN, 1996) both consider why managers manipulate accounting accruals. Subramanyam finds that discretionary accruals are associated with seve ral performance measures, and concludes that managers' accrual choices increase the informativeness of accounting earnings. However, a stron g competing alternative is that the 'Jones model' systematically misme asures discretionary accruals, so that they contain a significant nond iscretionary component. Unlike many US studies, KKN find strong eviden ce of earnings management in Finland, where Finnish managers set earni ngs to satisfy the demand for dividends by keiretsu-like institutional investors.