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Earnings management to avoid earnings decreases and losses

Journal of accounting & economics, 1997-12, Vol.24 (1), p.99-126 [Peer Reviewed Journal]

1997 Elsevier Science B. V. ;Copyright Elsevier Sequoia S.A. Dec 1997 ;ISSN: 0165-4101 ;EISSN: 1879-1980 ;DOI: 10.1016/S0165-4101(97)00017-7 ;CODEN: JAECDS

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  • Title:
    Earnings management to avoid earnings decreases and losses
  • Author: Burgstahler, David ; Dichev, Ilia
  • Subjects: Accounting ; Accounting theory ; Earnings ; Earnings decreases ; Earnings management ; Earnings trends ; Financial management ; Financial reporting ; Hypotheses ; Income ; Losses ; Profitability ; Studies
  • Is Part Of: Journal of accounting & economics, 1997-12, Vol.24 (1), p.99-126
  • Description: This paper provides evidence that firms manage reported earnings to avoid earnings decreases and losses. Specifically, in cross-sectional distributions of earnings changes and earnings, we lind unusually low frequencies of small decreases in earnings and small losscs and unusually high frequencies of small increases in earnings and small positive income. We find evidence that two components of earnings, cash flow from operations and changes in working capital, are used to achieve increases in earnings. We present two theories, based on stakeholder use of information-processing heuristics and prospect theory, about the motivation for avoidance of earnings decreases and losses.
  • Publisher: Amsterdam: Elsevier B.V
  • Language: English
  • Identifier: ISSN: 0165-4101
    EISSN: 1879-1980
    DOI: 10.1016/S0165-4101(97)00017-7
    CODEN: JAECDS
  • Source: Alma/SFX Local Collection
    RePEc
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