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This paper addresses the issue of the earnings distribution (explicitly net earnings, operating earnings and financing income) of Slovenian micro, small and medium-sized enterprises (now on SMEs). It builds on the work by Burgstahler and Dichev (1997) on the earnings manipulation to avoid losses. We take their cross-sectional distribution of earnings approach as a baseline of our analysis, and apply it in an economic and financial crisis situation within the 2008-2010 period across various company size groups in Slovenia, a setting with extremely limited access to finance. However, since Durtschi and Easton (2005) claim Burgstahler and Dichev’s (1997) approach per se do not necessarily prove earnings management, we additionally perform a nonparametric Wilcoxon matched-pairs signed-ranks test (Wilcoxon, 1945) on sub-samples of micro, small, medium-sized and large companies, controlled for their capital structure (indebtedness). The results of our analysis show a) earnings shifts occur in financial crisis also, b) earnings shifts occur more often among micro and small companies than medium sized and large companies, and c) despite of limited access to finance, rising funding costs and decreasing investment returns, micro and small companies making operating loss are recognizing statistically significant higher financing income compared to profit making micro and small companies and loss making medium sized and large companies.

Do Small Companies Have Superior Financial Expertise Or Are They Just Managing Earnings?