Intra-year shifts in the earnings distribution and their implications for earnings management

Intra-year shifts in the earnings distribution and their implications for earnings management Previous findings that upward earnings management causes a kink in the distribution of annual earnings cannot be verified without a well-specified benchmark for pre-managed annual earnings. We model shifts in the cumulative earnings distribution during the fourth quarter to explain the kink's formation. Logistic regression results show that compared to a control group, a high proportion of firms with small cumulative profits or losses at the beginning of the fourth-quarter report small annual profits rather than small annual losses. This suggests that upward earnings management causes the kink and indicates which firms are likely to manage earnings upward. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Intra-year shifts in the earnings distribution and their implications for earnings management

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Publisher
Elsevier
Copyright
Copyright © 2007 Elsevier B.V.
ISSN
0165-4101
D.O.I.
10.1016/j.jacceco.2007.04.004
Publisher site
See Article on Publisher Site

Abstract

Previous findings that upward earnings management causes a kink in the distribution of annual earnings cannot be verified without a well-specified benchmark for pre-managed annual earnings. We model shifts in the cumulative earnings distribution during the fourth quarter to explain the kink's formation. Logistic regression results show that compared to a control group, a high proportion of firms with small cumulative profits or losses at the beginning of the fourth-quarter report small annual profits rather than small annual losses. This suggests that upward earnings management causes the kink and indicates which firms are likely to manage earnings upward.

Journal

Journal of Accounting and EconomicsElsevier

Published: Dec 1, 2007

References

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