Abstract

http://ssrn.com/abstract=410543
 
 

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Why are Earnings Kinky? An Examination of the Earnings Management Explanation


Patricia M. Dechow


University of California, Berkeley - Haas School of Business

Scott A. Richardson


London Business School; AQR Capital Management, LLC

A. Irem Tuna


London Business School


Review of Accounting Studies, Vol. 8, pp. 355-384, June-September 2003

Abstract:     
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.

Keywords: accruals, earnings distribution, discretionary accruals, earnings management

JEL Classification: M41, M43

Accepted Paper Series


Not Available For Download

Date posted: September 22, 2003  

Suggested Citation

Dechow, Patricia M. and Richardson, Scott A. and Tuna, A. Irem, Why are Earnings Kinky? An Examination of the Earnings Management Explanation. Review of Accounting Studies, Vol. 8, pp. 355-384, June-September 2003. Available at SSRN: http://ssrn.com/abstract=410543

Contact Information

Patricia M. Dechow (Contact Author)
University of California, Berkeley - Haas School of Business ( email )
545 Student Services Building
Berkeley, CA 94720
United States
Scott Anthony Richardson
London Business School ( email )
Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
AQR Capital Management, LLC ( email )
Greenwich, CT
United States
Ayse Irem Tuna
London Business School ( email )
Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
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