Business cycles and earnings management.

This study investigates the impact of business cycles on earnings management in the United States. Using a large cohort of firms in the United States from the S&P 1500 index and the period of 2000-2010, we employ estimates based on a pooled least squares model, a fixed effects model, and a random effects model. Our findings show that firm discretionary accruals increase during expansionary economic periods and decrease during contractionary periods. We also find that the Sarbanes-Oxley Act has had no effect on mitigating discretionary accruals. Our primary contribution to the existing literature is a thorough econometric analysis of discretionary accruals and their relationship to economic cycles and the Sarbanes-Oxley Act using a large and comprehensive data set. --Leaf ii.