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Real earnings management is estimated by the abnormal cash flows (AbCFO), abnormal production costs (ADPROD), and abnormal discretionary expenditures (AbDisExp). After regressing three empirical equations
Real earnings management is estimated by the abnormal cash flows (AbCFO), abnormal production costs (ADPROD), and abnormal discretionary expenditures (AbDisExp). After regressing three empirical equations to estimate these measures following Roychowdhury (2006), we can combine these three measures into one comprehensive real earnings management variable (ABREM). In doing so, why you need to multiply -1 (negative one) to AbCFO and AbDisExp? (5 points) Real earnings management is estimated by the abnormal cash flows (AbCFO), abnormal production costs (ADPROD), and abnormal discretionary expenditures (AbDisExp). After regressing three empirical equations to estimate these measures following Roychowdhury (2006), we can combine these three measures into one comprehensive real earnings management variable (ABREM). In doing so, why you need to multiply -1 (negative one) to AbCFO and AbDisExp? (5 points)
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