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Earnings Management to Exceed Thresholds

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  • Degeorge, Francois
  • Patel, Jayendu
  • Zeckhauser, Richard

Abstract

Earnings provide important information for investment decisions. Thus, executives--who are monitored by investors, directors, customers, and suppliers--acting in self-interest and at times for shareholders, have strong incentives to manage earnings. The authors introduce behavioral thresholds for earnings management. A model shows how thresholds induce specific types of earnings management. Empirical explorations identify earnings management to exceed each of three thresholds: report positive profits, sustain recent performance, and meet analysts' expectations. The positive profits threshold proves predominant. The future performance of firms suspect for boosting earnings just across a threshold is poorer than that of control group firms. Copyright 1999 by University of Chicago Press.

Suggested Citation

  • Degeorge, Francois & Patel, Jayendu & Zeckhauser, Richard, 1999. "Earnings Management to Exceed Thresholds," The Journal of Business, University of Chicago Press, vol. 72(1), pages 1-33, January.
    • Handle: RePEc:ucp:jnlbus:v:72:y:1999:i:1:p:1-33
    DOI: 10.1086/209601
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    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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