Managerial reporting behavior around exchange switching: Consideration of current and future performance

By examining firms switching trading markets from the NASDAQ or AMEX to the NYSE and from the NASDAQ to the AMEX, we find that switching firms typically report significant positive abnormal accruals in the year preceding exchange switching. The pre-switching abnormal accruals are negatively associated with post-switching stock and operating performance, with the association driven mainly by firms with poor earnings in both current and future periods. The results suggest that pre-switching earnings management behavior, on average, supports the managerial opportunism, but not the signaling, intent. In further analysis, we find some evidence that firms with good performance in both current and future periods tend to choose income-decreasing reporting to avoid competition and/or mitigate adverse political attention.