Why Are Earnings Kinky? An Examination of the Earnings Management Explanation
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Prior research has documented a “kink” in the earnings distribution: too few firms report small losses, too many firms report small profits. We investigate whether boosting of discretionary accruals to report a small profit is a reasonable explanation for this “kink.” Overall, we are unable to confirm that boosting of discretionary accruals is the key driver of the kink. We caution the use of the ratio of small profit firms to small loss firms as a measure of earnings management. We investigate and discuss a number of alternative explanations for the kink.
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- Why Are Earnings Kinky? An Examination of the Earnings Management Explanation
Review of Accounting Studies
Volume 8, Issue 2-3 , pp 355-384
- Cover Date
- Print ISSN
- Online ISSN
- Kluwer Academic Publishers
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- earnings distribution
- discretionary accruals
- earnings management
- Industry Sectors