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Window Dressing in Reported Earnings: A Comparison of High-Tech and Low-Tech Companies

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  • Fengyi Lin
  • Lijuan Zhao
  • Liming Guan

Abstract

We examine the rounding phenomenon (called window dressing) in financial reporting of U.S. high-tech and low-tech firms. By requiring that investments in research and development be expensed as incurred, the generally accepted accounting principles provide low-tech firms with a larger set of accounting choices with which to manipulate earnings than are provided to high-tech firms. Therefore, we find window dressing of earnings is more severe in low-tech firms than in high-tech firms. We also find that window dressing of revenues is more severe in high-tech firms than in low-tech firms. This result suggests that high-tech firms engage more in revenue management to compensate for the smaller set of accounting choices with which to manage earnings.

Suggested Citation

  • Fengyi Lin & Lijuan Zhao & Liming Guan, 2014. "Window Dressing in Reported Earnings: A Comparison of High-Tech and Low-Tech Companies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(S1), pages 254-264.
    • Handle: RePEc:mes:emfitr:v:50:y:2014:i:s1:p:254-264
    DOI: 10.2753/REE1540-496X5001S116
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    Cited by:

    1. Cheng Zhao & Chong Alex Wang, 2023. "A cross-site comparison of online review manipulation using Benford’s law," Electronic Commerce Research, Springer, vol. 23(1), pages 365-406, March.
    2. Lin, Fengyi & Lin, Li-Jung & Yeh, Chin-Chen & Wang, Teng-Shih, 2018. "Does the board of directors as Fat Cats exert more earnings management? Evidence from Benford’s law," The Quarterly Review of Economics and Finance, Elsevier, vol. 68(C), pages 158-170.

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