What are relationship specific investments?
As noted earlier, a relationship specific investment is an investment which once made (sunk) by one or both parties to an ongoing trading relationship has a lower value in alternative uses than it has in the intended use supporting this specific bilateral trading relationship.
What are some of the ways to manage earnings?
Accounting Methods That Manage Earnings, Cash Flow, and Balance Sheet Items
- Cost Flow Assumptions. Choosing a cost flow assumption can affect profitability.
- Accrual Accounting vs.
- Deferred Tax Estimates.
- Depreciation Method.
- Capitalization Practices.
- Acquisitions.
- Goodwill.
- The Preparation of the Statement of Cash Flows.
How does earnings management relate to accounting quality?
In accounting, earnings management is a method of manipulating financial records to improve the appearance of the company’s financial position. Companies use earnings management to present the appearance of consistent profits and to smooth earnings’ fluctuations.
What is a relationship-specific asset?
Assets are relationship-specific if their value is greater within a relationship than outside it. A typical example involves an upstream supplier who makes investments to customize her product for the needs of the downstream purchaser.
What is a relationship-specific exchange?
Relationship-specific exchange. Type of Hidden Transaction cost. A type of exchange that occurs when the parties to a transaction have made specialized investments.
How many types of earnings management are there?
There are two types of earnings management: efficient earnings management (i.e., to improve earnings informativeness in communicating private information) and opportunistic earnings management (i.e., management reports earnings opportunistically to maximize his/her utility) (Scott, 2000).
How do earnings management practices affect the quality of earnings?
Earnings management has a negative effect on the quality of earnings if it distorts the information in a way that it less useful for predicting future cash flows. The term quality of earnings refers to the credibility of the earnings number reported. Earnings management reduces the reliability of income.
What is earnings quality and earnings management?
From the concept of earnings management, earnings quality can be gauged. That is, when managers do not intervene the earnings reporting process, earnings quality is high. Put formally, earnings quality measures the extent to which reported earnings numbers faithfully represent the fundamental earnings performance.
What factors contribute to asset specificity?
Key Takeaways
- A resource that can be readily adapted for many purposes is said to have low specificity.
- A resource that is customized for specialized uses has high specificity.
- The resource that has low specificity generally has a higher resale value.
When relationship-specific exchange occurs in complex contractual environments the best way to purchase inputs is through?
7. When relationship-specific exchange occurs in complex contractual environments, the best way to purchase inputs is through: B. vertical integration.