EconPapers    
Economics at your fingertips  
 

Is ‘benchmark beating’ by Australian firms evidence of earnings management?

Jeff Coulton, Sarah Taylor and Stephen Taylor

Accounting and Finance, 2005, vol. 45, issue 4, 553-576

Abstract: We investigate the extent to which Australian firms that report small profits and/or small increases in earnings (i.e. benchmark beaters) have done so by the upward manipulation of these earnings. Although evidence of an unusually large number of firms managing to just beat such earnings benchmarks has been interpreted as evidence of earnings management, this approach fails to identify those firms that are the manipulators from those where unbiased earnings fall naturally into the benchmark beating group. Our results suggest that caution is required in interpreting benchmark beating as an indicator of the extent of earnings management. Using several methods for estimating the unexpected accrual component of earnings, we show that although benchmark beaters have larger positive unexpected accruals than other firms, a similar result holds when firms with small losses or earnings declines (i.e. ‘just miss’ firms) are compared with other firms. Moreover, there is no statistically significant difference between unexpected accruals for the benchmark beating and just miss groups. At a minimum, we reject the joint hypothesis that unexpected accruals capture earnings management and that an unusual kink around zero in the distribution of earnings levels or earnings changes is caused by earnings management.

Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16) Track citations by RSS feed

Downloads: (external link)
https://doi.org/10.1111/j.1467-629X.2005.00145.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:acctfi:v:45:y:2005:i:4:p:553-576

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0810-5391

Access Statistics for this article

Accounting and Finance is currently edited by Robert Faff

More articles in Accounting and Finance from Accounting and Finance Association of Australia and New Zealand Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2019-08-08
Handle: RePEc:bla:acctfi:v:45:y:2005:i:4:p:553-576