Further Investigation of the Earnings Benchmark at Zero

• In Event: Financial Accounting and Reporting 8

Abstract

Do firms manage earnings to avoid small losses? Research has produced evidence seeming to indicate that firms engage in earnings management to avoid reporting small losses. In summing the number of firms reporting income in different income intervals, researchers find an unexpectedly low frequency of small losses and an unexpectedly high frequency of small gains. However, other researchers have shown alternative explanations for the observed phenomenon. The purpose of this study is to provide a more detail description and understanding of earnings behavior surrounding zero earnings. We find earnings distributions consistent with earnings management that cannot be explained by sampling bias nor by scaling.

Authors

• Steven C Hall, University of Nebraska- Kearney

• William W Stammerjohan, Louisiana Tech University