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What Have We Learned About Earnings Management? Integrating Discontinuity Evidence
Author(s) -
Burgstahler David,
Chuk Elizabeth
Publication year - 2017
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1111/1911-3846.12301
Subject(s) - classification of discontinuities , discontinuity (linguistics) , earnings , regression discontinuity design , earnings management , accounting , business , economics , mathematics , mathematical analysis , statistics
The accounting literature includes numerous examples of discontinuities at prominent benchmarks that are widely interpreted as evidence that earnings are managed to meet those benchmarks. However, there are a few examples where discontinuities do not exist, which are sometimes interpreted as inconsistent with earnings management. Alternative explanations for discontinuities have also been suggested. This paper reviews, evaluates, and integrates the available evidence and concludes that the theory that earnings are managed to meet benchmarks provides the simplest and most complete explanation for the body of discontinuity‐related evidence.