Earnings management and accounting income aggregation

Quarterly earnings allow aggregation into annual earnings in four different ways. Fiscal year earnings is one measure of annual earnings, the others being earnings for annual periods ending at interim quarter-ends. We investigate earnings management in fiscal year earnings relative to these alternat...

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Bibliographic Details
Published in:Journal of accounting & economics 2007-07, Vol.43 (2), p.369-390
Main Authors: Jacob, John, Jorgensen, Bjorn N.
Format: Article
Language:English
Subjects:
Accounting
Accounting methods
Business accounting
Business management
Discontinuities
Distribution
Earnings
Earnings distributions
Earnings management
Earnings thresholds
Financial reporting
Histograms
Studies
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Summary:Quarterly earnings allow aggregation into annual earnings in four different ways. Fiscal year earnings is one measure of annual earnings, the others being earnings for annual periods ending at interim quarter-ends. We investigate earnings management in fiscal year earnings relative to these alternative measures of firms’ annual earnings. We confirm prior findings in Burgstahler and Dichev (1997. Earnings management to avoid earnings decreases and losses. Journal of Accounting and Economics 24, 99–126) of discontinuities around zero and prior year earnings in histograms of earnings. Subsequent research questions whether these discontinuities are evidence of earnings management. Using histograms of our alternative annual earnings measures, we offer evidence suggesting earnings management is responsible for the discontinuities.
ISSN:0165-4101
1879-1980
DOI:10.1016/j.jacceco.2007.01.007