The Power of Numbers: Base-Ten Threshold Effects in Reported Revenue

67 Pages Posted: 31 Mar 2016 Last revised: 8 May 2019

See all articles by Derrald Stice

Derrald Stice

University of Hong Kong - Faculty of Business and Economics - Accounting Area

Earl Stice

Brigham Young University; Nazarbayev University

Han Stice

The Chinese University of Hong Kong

Lorien Stice-Lawrence

University of Southern California - Marshall School of Business

Date Written: May 3, 2019

Abstract

We provide evidence that managers have a revealed preference for reporting total revenue numbers just above base-ten thresholds (i.e., “round” numbers) of the form N × 10^K. We find that firms that beat a base-ten threshold for the first time experience an increase in visibility across a wide range of channels. Specifically, news coverage, liquidity, analyst following, and institutional ownership increase in the years immediately after a threshold is attained. We also provide evidence that some firms engage in costly and unsustainable actions in order to beat base-ten revenue thresholds, with positive revenue management, temporarily high revenue growth, and subsequent drops in profitability and abnormal returns. Our results have broader implications for the literature on target-beating because they document the presence and consequences of target-beating in a setting where the targets are exogenously determined and not confounded with underlying economic processes.

Keywords: Base-Ten Thresholds, Revenue Quality, News Coverage, Target-Beating

JEL Classification: G10, M21, M41, K20

Suggested Citation

Stice, Derrald and Stice, Earl and Stice, Han and Stice-Lawrence, Lorien, The Power of Numbers: Base-Ten Threshold Effects in Reported Revenue (May 3, 2019). Available at SSRN: https://ssrn.com/abstract=2756306 or http://dx.doi.org/10.2139/ssrn.2756306

Derrald Stice (Contact Author)

University of Hong Kong - Faculty of Business and Economics - Accounting Area ( email )

Hong Kong, HK
China

Earl Stice

Brigham Young University ( email )

Provo, UT 84602
United States

Nazarbayev University ( email )

53 Kabanbay Batyra Avenue
Astana, 010000
Kazakhstan

Han Stice

The Chinese University of Hong Kong ( email )

Shatin, N.T.
Hong Kong

Lorien Stice-Lawrence

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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