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The frequency and magnitude of earnings management: Time-series and multi-threshold comparisons

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  • Chen, Shaw K.
  • Lin, Bing-Xuan
  • Wang, Yaping
  • Wu, Liansheng

Abstract

We measure the frequency and magnitude of earnings management assuming earnings follow a mixed-normal distribution. We show that the frequency of earnings management is the highest when firms try to meet analysts' forecasted earnings and furthermore the trend is magnified in recent years. Additionally, more firms manage earnings to avoid earnings decreases rather than to avoid negative earnings. Furthermore, the magnitude of earnings management is the greatest when firms try to avoid earnings decreases. Earnings managements to avoid negative and decreased earnings are lower in recent years, and the magnitude of earnings management to meet forecasted earnings became dominant after 2001.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 19 (2010)
Issue (Month): 4 (October)
Pages: 671-685

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Handle: RePEc:eee:reveco:v:19:y:2010:i:4:p:671-685

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Web page: http://www.elsevier.com/locate/inca/620165

Related research

Keywords: Earnings management Earnings distribution Analysts' forecasted earnings Avoid losses Avoid decreases;

References

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Cited by:
  1. Wu, Yan Wendy, 2011. "Optimal executive compensation: Stock options or restricted stocks," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 633-644, October.
  2. Baglioni, Angelo & Colombo, Luca, 2011. "The effects of imperfect auditing on managerial compensation," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 542-548, October.

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