An analysis of the reasons for the asymmetries surrounding earnings benchmarks

Bruce K. Bennett and Michael E. Bradbury

Accounting and Finance, 2010, vol. 50, issue 3, 529-554

Abstract: Several studies report an asymmetry in the distribution of earnings around specified benchmarks. However, doubt has arisen over whether the observed ‘kink’ in the distribution of earnings is solely caused by earnings management. We use a ratio analysis approach to examine a range of specific accruals for evidence of earnings management. We find little evidence that firms immediately above the benchmark have abnormal receivables, inventories or provisions. However, they do increase cash‐from‐customers and reduce inventory. Thus, our results support the recent research that suggests that firms engage in real actions to meet earnings benchmarks.

Date: 2010
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https://doi.org/10.1111/j.1467-629X.2009.00340.x

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