Earnings Management to Exceed Thresholds

Francois Degeorge (), Jayendu Patel and Richard Zeckhauser

The Journal of Business, 1999, vol. 72, issue 1, 1-33

Abstract: Earnings provide important information for investment decisions. Thus, executives--who are monitored by investors, directors, customers, and suppliers--acting in self-interest and at times for shareholders, have strong incentives to manage earnings. The authors introduce behavioral thresholds for earnings management. A model shows how thresholds induce specific types of earnings management. Empirical explorations identify earnings management to exceed each of three thresholds: report positive profits, sustain recent performance, and meet analysts' expectations. The positive profits threshold proves predominant. The future performance of firms suspect for boosting earnings just across a threshold is poorer than that of control group firms. Copyright 1999 by University of Chicago Press.

Date: 1999
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Related works:
Working Paper: Earnings Management to Exceed Thresholds (1998)
Working Paper: Earnings Management to Exceed Thresholds (1997)
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