Do Manufacturing Firms Manage Nonoperating Costs to Meet the Earnings Benchmark at Zero?

• In Event: Financial Accounting and Reporting 1

Abstract

Burgstahler and Dichev (1997), hereafter BD, and others document unusually low frequencies of small losses and unusually high frequencies of small positive incomes and regard this as evidence of earnings management. Others have searched for other evidence of earnings management surrounding the benchmark. This study investigates whether firms use the nonoperating component of earnings to meet the earnings benchmark, i.e., to avoid reporting small losses. We find that they do.

Authors

• Steven C Hall, University of Nebraska- Kearney

• William W Stammerjohan, Louisiana Tech University

• Laurie S Swinney, University of Nebraska- Kearney