The Association between Unbilled Receivables and the Type of Earnings Management

Kyung-Heon Kwon, Namryoung Lee

Abstract

Unbilled receivables necessarily arising from contracts that take a relatively long time to complete may be related to earnings management. This study investigates whether magnitude of unbilled receivables varies depending on the circumstances of the firm. This study analyzes the relationship between unbilled receivables and the type of earnings management based on the signs of both nondiscretionary earnings and discretionary accruals, during the period from 2010 through 2016. The results indicate that the relationship with unbilled receivables differs based on the type of earnings management. Unbilled receivables were found to be actively used in upward earnings management or big bath accounting.