| Earnings Management and Accounting Income Aggregation* (2006) | |||||||||||||
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| University of Washington and an anonymous referee for their comments and suggestions. The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission or of the author’s colleagues upon the staff of the Commission. Earnings Management and Accounting Income Aggregation Quarterly earnings allow aggregation into annual earnings in four different ways. Fiscal year reported earnings is one of these four possible measures of annual earnings, the others being earnings for annual periods ending at the first, second, and third fiscal quarters. We provide evidence on earnings management in fiscal year earnings relative to these three alternative measures of firms ’ annual earnings. We confirm prior findings in Burgstahler and Dichev (1997) of discontinuities around zero and around prior year earnings in histograms of fiscal year earnings. Subsequent research questions whether these discontinuities are evidence of earnings management or whether they are attributable to biases induced by scaling, sample selection and taxes. Using the histograms of our alternative annual earnings measures, we offer evidence that these biases are not responsible for the basic Burgstahler and Dichev (1997) findings. | |||||||||||||
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