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Earnings Rounding-up Behavior and Earnings Management


  • Kuang-Ku Chen

    (Department of Accountancy, National Changhua of Education University, Taiwan)

  • Kuo-Chih Cheng

    (Department of Accounting Information, Kun-Shan University of Technology, Taiwan)

  • Mei-Ling Yang

    (Department of Accountancy, National Cheng Kung University, Taiwan and Accounting Information Department, Shih Chien University, Taiwan)

  • Shao-Hsi Chung

    (Mei-ho Institution of Technology, Department of Public Finance, Taiwan)


This research starts with the assumption that, in Taiwanese companies listed as "Emerging," earnings are manipulated to surpass a cognitive reference point denoted by ¡uN*10k¡v, as has been documented by Carslaw (1988) and Thomas (1989). This paper investigates whether similar manipulation exists in companies listed as TSEC and TOC listed as well. Furthermore, we extend Carslaw's (1988) and Thomas's (1989) research by examining whether managers manipulate discretionary accruals (DAs) and working capital items, representing relatively low earnings management costs to make earnings exceed such a cognitive reference point. The result shows that the listed companies of Taiwan manipulate earnings to surpass this cognitive reference point. However, this phenomenon is less significant for negative earnings than it is for positive earnings. This phenomenon is even more significant for listed companies than for emerging companies. Finally, the higher the levels of DA and working capital are, the more significant such phenomena are; this implies that DA and working capital items are used to round up earnings, and managers report earnings numbers that exceed the cognitive reference point.

Suggested Citation

  • Kuang-Ku Chen & Kuo-Chih Cheng & Mei-Ling Yang & Shao-Hsi Chung, 2009. "Earnings Rounding-up Behavior and Earnings Management," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 5(1), pages 135-157, January.
  • Handle: RePEc:jec:journl:v:5:y:2009:i:1:p:135-157

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    More about this item


    earnings management; number cognitive; discretionary accruals; rounding earnings numbers;

    JEL classification:

    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting


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