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dc.contributor.authorCohen, Daniel-
dc.contributor.authorDarrough, Masako-
dc.contributor.authorHuang, Rong-
dc.contributor.authorZach, Tzachi-
dc.description.abstractUtilizing a database that recently became available due to the requirements of FIN 45, we examine the information content of accounting disclosures on warranties from two perspectives. First, since a warranty policy is a business strategy through which firms choose to promote their products, a warranty reserve serves two roles: a signal of product quality as well as a contingent liability to be honored in the future. Consistent with this view, we find that the stock market recognizes the warranty reserve as both a signal of firms’ future performance as well as a liability. Second, since warranty accruals require estimation of future claims, any discretion in this context can also be used as a tool of earnings management. Consistent with this expectation, our evidence indicates that managers use warranty accruals to manage earnings opportunistically to meet their earnings targets.en
dc.relation.ispartofseriesDaniel A. Cohen-15en
dc.titleWarranty Reserve: Contingent Liability, Strategic Signal, or Earnings Management Toolen
dc.typeWorking Paperen
Appears in Collections:Accounting Working Papers

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