Abstract
The Dechow et al. paper (2003, this issue) on the distribution of earnings raises an important question: why are earnings kinky? They conduct a number of tests of the earnings management explanation and do not find supportive evidence. They also provide evidence that a number of factors influence the magnitude of the discontinuity in earnings, suggesting that it is a poor proxy for the extent of earnings management. This discussion addresses the contribution of their study, the power of their tests and the implications for future research.
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McNichols, M.F. Discussion of “Why are Earnings Kinky? An Examination of the Earnings Management Explanation”. Review of Accounting Studies 8, 385–391 (2003). https://doi.org/10.1023/A:1024486000789
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DOI: https://doi.org/10.1023/A:1024486000789