The Miller Ratio (MR): A Tool For Practitioners And Regulators To Detect For The Possibility Of Earnings Management (EM)

Abstract

The implications of the study of the MR (Miller Ratio) are the possibilities of, with future research support, the MR being both a beneficial, and easy to use, tool for practitioners and regulators to detect for the possibility of EM (earnings management). The previously studied models were not designed to be utilized on a case-by-case basis since they were studied using large samples of firms in an attempt to make generalized statements about the effectiveness of the models. The MR, designed to be utilized on a case-by-case basis, is easily computed. If corporate managers were aware of this simple, easy-to-use tool to detect EM, they may be more cautious of engaging in this activity. Essentially, the MR could assist practitioners and regulators in prioritizing their work load of companies to analyze. It is another arrow in their quiver, so to speak.