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Difference between real earnings management and accrual-based earnings management . Real earnings management means when managers hide potential economic performance of cash flow generated assets in the current year for boosting the reported earnings to meet and beat the bench mark report of analyst. In other words, it is called forfeited of future cash flows of the firms. This is otherwise called operating related activities. This may be investment related, finance related or operation related. Reducing any of the activities is hiding of underlying economic performance of firm in future. This activities possible due to time gap and structuring of transactions. A manager does these activities to a large extent for boosting profit. Because he has another tool in his hand in the end of the accounting year to adjust the transaction. Decrease (increase) of real earnings management is adjusted through accrual based earnings management (Zang, 2012). Why managers do this type of a...

Instrumental approach and two SLS/three SLS approach. Instrumental approach or you can say variable is the part of the endogeneity problem. Here we will discuss the endogeneity problem. Endogeneity problem means – when we have three types of situation (1) omitted variable bias, (2) measurement error, (3) Reverse causality. Here we will discuss the reverse causality. Reverse causality arises when we have a function Y= α + β X Here Y variable is caused by the X variable. That means we are not sure the direction of causality. The direction of causality makes no sense which variable is dependent variable and which variable is independent variable. This cause will generate the biased parameter of interest.   We are interested to get the unbiased parameter of interest ( β). To get unbiased parameter of interest, we take the help of instrumental variable approach. How instrumental variable approach is helping to get the parameter of interest (β). Let us discuss with an ...

Panel regression Date- 20-02-2014 Unobserved unit specific heterogeneity- In panel regression, we generally face the situation that heterogeneity of individuals. Due to heterogeneity of individuals, we divide the estimation techniques into two parts (1) Fixed effect estimation (Fixed effect) (2) Random effect.                     Panel model:                                    yit = β0 + β1x1it +· · ·+βkxkit + γ1z1i +· · ·+γj zj i + ui + eit Here: Yit= dependent variable of i th observation at T th time. Xit------Xkit: are the independent variables ( time varying variables) γ1z1i............γj zji : are the independent variables (time constant variables) Time in-varying variables mean- Where variables are not changed over time. Ex- Ethics , education, religion etc. Time Varying va...