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Anomalies and Unusual Patterns in Reported Earnings: Japanese Managers Round Earnings
Author(s) -
Skousen Christopher J.,
Guan Liming,
Wetzel T. Sterling
Publication year - 2004
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/j.1467-646x.2004.00108.x
Subject(s) - earnings , benford's law , rounding , point (geometry) , incentive , earnings response coefficient , earnings management , business , economics , accounting , econometrics , statistics , mathematics , computer science , microeconomics , geometry , operating system
Using Benford's law, this study documents pervasive evidence that managers of Japanese firms tend to engage in earnings manipulative activities of rounding earnings numbers to achieve key reference points. Similar to Carslaw (1988) and Thomas (1989), we find that the first digit of earnings numbers is often emphasized by the management. We also find that key reference points are not limited to the first digit. The second, third, or even fourth digits are sometimes used as the reference points of the rounding earnings behavior. Finally, our results show that the incentives of rounding earnings numbers are negatively associated with the distance of pre‐rounded earnings to the next reference point.