Evidence on using the estimation of level 3 fair values as an earnings management tool: evidence from Taiwan

This study aims to present direct evidence on whether the estimations of Level 3 fair values (L3FVs) are used as an earnings management tool. Researchers argue this possibility but there is a lack of direct evidence. Moreover, this study tests the moderating effect of managerial education level on using the estimation of L3FVs as an earnings management tool. The results show that the firms suspected of earnings management report relatively large abnormal valuation adjustments to L3FVs, suggesting that the estimations of L3FVs are used as an earnings management tool. Furthermore, the results indicate that the graduate education of accounting and financial managers in finance reduces the use of the estimation of L3FVs to manage earnings.