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Earnings Management to Exceed Thresholds
Francois Degeorge,Francois Degeorge,Jayendu Patel,Richard J. Zeckhauser,Richard J. Zeckhauser +4 more
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In this article, behavioral thresholds for earnings management are introduced to identify earnings management to exceed each of three thresholds: report of positive profits, sustain recent performance, and meet analysts' expectations.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. We 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 of positive profits, sustain recent performance, and meet analysts' expectations. The positive profits threshold proves predominant. The future performance of firms that have possibly boosted earnings just across a threshold appears poorer than that of less suspect control groups.read more
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References
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Prospect theory: an analysis of decision under risk
Daniel Kahneman,Amos Tversky +1 more
TL;DR: In this paper, the authors present a critique of expected utility theory as a descriptive model of decision making under risk, and develop an alternative model, called prospect theory, in which value is assigned to gains and losses rather than to final assets and in which probabilities are replaced by decision weights.
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Density estimation for statistics and data analysis
TL;DR: The Kernel Method for Multivariate Data: Three Important Methods and Density Estimation in Action.
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The Strategy of Conflict
TL;DR: In this paper, the authors propose a theory of interdependent decision based on the Retarded Science of International Strategy (RSIS) for non-cooperative games and a solution concept for "noncooperative" games.
Posted Content
Detecting Earnings Management
TL;DR: In this paper, the authors evaluate alternative models for detecting earnings management by comparing the specification and power of commonly used test statistics across the measures of discretionary accruals generated by each model.
Journal ArticleDOI
An empirical evaluation of accounting income numbers
Ray Ball,Philip Brown +1 more
TL;DR: In this article, it is argued that income numbers cannot be defined substantively, that they lack "meaning" and are therefore of doubtful utility, and the argument stems in part from the patchwork development of account-based theories.