Discretionary Revenues as a Measure of Earnings Management

38 Pages Posted: 22 May 2008 Last revised: 23 Sep 2012

Date Written: July 1, 2009


This study examines the ability of revenue and accrual models to detect simulated and actual earnings management. The results indicate that revenue models are less biased, better specified, and more powerful than commonly used accrual models. Using a simulation procedure, I find that revenue models are more likely than accrual models to detect a combination of revenue and expense manipulation. Using a sample of firms subject to SEC enforcement actions for a mix of revenue- and expense-related misstatements, I find that, although revenue models detect manipulation, accrual models do not. These findings provide support for using measures of discretionary revenues to study earnings management.

Keywords: Revenues, Earnings Management, Discretionary Accruals

JEL Classification: M41, M43

Suggested Citation

Stubben, Stephen, Discretionary Revenues as a Measure of Earnings Management (July 1, 2009). Available at SSRN: https://ssrn.com/abstract=1135811 or http://dx.doi.org/10.2139/ssrn.1135811

Stephen Stubben (Contact Author)

University of Utah ( email )

1655 E. Campus Center
Salt Lake City, UT 84112
United States

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