Managers Often Are Accused of Making Accounting Changes in Order

Essay

Managers often are accused of making accounting changes in order to avoid regulation,to achieve compliance with debt covenants,to increase compensation through earnings-based bonus plans,or to smooth earnings.Managers may indeed believe that by increasing earnings,and thus increasing earnings per share,stock prices will increase.
Explain the relationship between attempts by managers to manipulate earnings through accounting changes and the efficient market hypothesis.