An alternative interpretation of the discontinuity in earnings distributions
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We show that the asymmetric effects of income taxes and special items for profit and loss firms contribute to a discontinuity at zero in the distribution of earnings. Income taxes draw profit observations towards zero while negative special items pull loss observations away from zero. These earnings components are thus expected to contribute to a discontinuity even in the absence of discretion. We show our results are not an artifact of deflation and that other common components of earnings do not have similar effects on the earnings distribution around zero.
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- An alternative interpretation of the discontinuity in earnings distributions
Review of Accounting Studies
Volume 12, Issue 4 , pp 525-556
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- Online ISSN
- Springer US
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- Earnings distributions
- Special items
- Income taxes
- Earnings management
- Industry Sectors