Window Dressing in Reported Earnings: A Comparison of High-Tech and Low-Tech Companies

Fengyi Lin, Lijuan Zhao and Liming Guan

Emerging Markets Finance and Trade, 2014, vol. 50, issue S1, 254-264

Abstract: We examine the rounding phenomenon (called window dressing) in financial reporting of U.S. high-tech and low-tech firms. By requiring that investments in research and development be expensed as incurred, the generally accepted accounting principles provide low-tech firms with a larger set of accounting choices with which to manipulate earnings than are provided to high-tech firms. Therefore, we find window dressing of earnings is more severe in low-tech firms than in high-tech firms. We also find that window dressing of revenues is more severe in high-tech firms than in low-tech firms. This result suggests that high-tech firms engage more in revenue management to compensate for the smaller set of accounting choices with which to manage earnings.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:50:y:2014:i:s1:p:254-264

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DOI: 10.2753/REE1540-496X5001S116

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