Factors Affecting Firm's Big-Bath and Cookie-Jars Earnings Management: Default Risk and Changes in Institutional Ownership

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The purpose of this paper is to focus on the risk of default affecting earnings management factors, and to explore the reaction of institutional investors and the company''s ultimate long-run performance when the company manages the surplus management of “Big Bath” and “Cookie Jar” under the risk of default. The empirical results show that when the company conducts the “Big Bath” earnings management method, regardless of the long-run and short-run institutional investors tend to reduce their holdings, and the company conducts the “Cookie Jar” earnings management method has the opposite result. In the long-run performance, it was found that the “Big Bath” or “Cookie Jar” company with high default risk, regardless of long-run and short-run institutional investors have relatively good long-run performance.