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consequently the impact of discretionary accruals on the firm's performance corresponds to the addition of DACCt�<sup>1</sup> and DACCt�1\*SYS (=DACC<sup>t</sup>�<sup>1</sup> + DACCt�1\*SYS) which is reported in the table in italic characters. In the first regression, this addition of variables takes a value equal to 2.1549. Consequently, for the 'Transparent Countries', a marginal increase in earnings management (DACCt�1) causes more than twice an impact on the change in stock price (MP1). However, since SYS takes a zero value for the group of 'Opaque Countries', the impact of discretionary accruals on market performance for this subset of countries corresponds only to the coefficient estimate of the DACCt�<sup>1</sup> variable, which in the first regression goes up to 7.059. Thus, before any marginal change in opportunistic managerial behaviour is measured through discretionary accruals, the impact on the change in price will be more than seven times the change in discretionary accruals. The significance of the linear combinations of coefficients is tested and it is accepted in all cases that the addition of the discretionary accruals variables and the interacted or multiplicative variables are statistically different from zero (e.g. see italic

In all the subsequent regression estimates of Table 6, we observe that the impact on any measure of market performance (MP1, MP2 or MP3) as a consequence of a change in the discretionary accruals is systematically greater in the group of 'Opaque Countries' than in the group of 'Transparent Countries'. This may be used as robust evidence that managers take more advantage of market myopia when institutional settings are endowed with weaker governance systems and where greater gaps of information exist between insiders and outsiders. In other words, although we subscribe to previous literature on the fact that governance systems are relatively weak in the Latin American region [40], we also recognize that there are still some intraregional differences in transparency and governance, as supported by our findings. Thus, in more transparent financial systems and where the right of shareholders is relatively better protected, the impact on market performance caused by opportunistic manipulation of financial reports is not as large as in contexts of less transparency and governance. We can derive out of this finding that the market is fooled in order to increase the firm's valuation by mispresenting the financial information. And even more, the weaker the governance systems across countries in the Latin American region, the greater the changes will be to boost firm value by misleading the market towards making wrong investment decisions.

Finally, findings concerning the control variables listed in Table 6 remain consistent with those previously interpreted based on Table 5. Thus, we can conclude that our overall findings are robust to a battery of alternative test specifications and controls, as well as to elaborate

The main goal of this chapter has been to measure the impact of earnings management and reporting on market performance. We have sought to examine this phenomenon in a holistic way. Far from a purely statistical correlation analysis, we have sought to examine the phenomenon in light of theories that support this from a management point of view, in an attempt to

characters in Table 6).

194 Corporate Governance and Strategic Decision Making

dependent and independent variables.

5. Conclusions and final remarks

merge the two together.

Paolo Saona\*, Alesia Slocum, Laura Muro and Gonzalo Moreno \*Address all correspondence to: psaonaho@slu.edu

John Cook School of Business, Saint Louis University, St. Louis, USA
