Corporate Earnings: Facts and Fiction

Baruch Lev

Journal of Economic Perspectives, 2003, vol. 17, issue 2, 27-50

Abstract: Manipulated earnings played a central role in the slew of corporate scandals which surfaced during the last three years. This article focuses on the vulnerability of earnings to manipulation by managers: it surveys the empirical record of manipulation, their major objectives, and the means of manipulation. It then focuses on the major source of earnings manipulation--the multitude of estimates and subjective judgments underlying the comutation of earnings. The article accordingly concludes with a proposal to curb manipulation by requiring managers to routinely compare key estimates with ex post realizations, and revise earnings in case of large deviations.

Date: 2003
Note: DOI: 10.1257/089533003765888412
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Citations: View citations in EconPapers (38)

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