Corporate Earnings: Facts and Fiction
- (pp. 27-50)
AbstractManipulated earnings played a central role in the slew of corporate scandals which surfaced during the last three years. This article focuses on the vulnerability of earnings to manipulation by managers: it surveys the empirical record of manipulation, their major objectives, and the means of manipulation. It then focuses on the major source of earnings manipulation--the multitude of estimates and subjective judgments underlying the comutation of earnings. The article accordingly concludes with a proposal to curb manipulation by requiring managers to routinely compare key estimates with ex post realizations, and revise earnings in case of large deviations.
CitationLev, Baruch. 2003. "Corporate Earnings: Facts and Fiction ." Journal of Economic Perspectives, 17 (2): 27-50. DOI: 10.1257/089533003765888412
- M41 Accounting
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill