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Corporate Earnings: Facts and Fiction

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  • Baruch Lev

Abstract

Manipulated earnings played a central role in the slew of corporate scandals which surfaced during the last three years. This article focuses on the vulnerability of earnings to manipulation by managers: it surveys the empirical record of manipulation, their major objectives, and the means of manipulation. It then focuses on the major source of earnings manipulation--the multitude of estimates and subjective judgments underlying the comutation of earnings. The article accordingly concludes with a proposal to curb manipulation by requiring managers to routinely compare key estimates with ex post realizations, and revise earnings in case of large deviations.

Suggested Citation

  • Baruch Lev, 2003. "Corporate Earnings: Facts and Fiction," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 27-50, Spring.
    • Handle: RePEc:aea:jecper:v:17:y:2003:i:2:p:27-50
    Note: DOI: 10.1257/089533003765888412
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/089533003765888412
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    References listed on IDEAS

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