Intra-Year Shifts in the Earnings Distribution and Implications for Earnings Management*

Journal of Accounting and Economics (Accepted May 2007)

Posted: 30 Sep 2005 Last revised: 5 Dec 2012

See all articles by Joseph Kerstein

Joseph Kerstein

Yeshiva University - Syms School of Business

Atul Rai

Wichita State University

Date Written: April 5, 2007

Abstract

We extend the earnings distribution-based approach to explain the kink in the annual earnings distribution by examining its evolution. Our analyses fail to confirm prior research implications that the kink develops when firms facing smallest year-to-date losses abnormally shift into the smallest profit interval. We find the primary abnormal tendency by firms during the development of the kink is to remain in the smallest profit interval, rather than to move into a higher earnings interval. This suggests that firms avoiding smallest losses most likely prevent year-to-date profits from turning into annual losses rather than converting year-to-date losses into annual profits.

Keywords: Earnings management, earnings distribution, losses

JEL Classification: M4, L14, C89

Suggested Citation

Kerstein, Joseph J. and Rai, Atul, Intra-Year Shifts in the Earnings Distribution and Implications for Earnings Management* (April 5, 2007). Journal of Accounting and Economics (Accepted May 2007), Available at SSRN: https://ssrn.com/abstract=817365 or http://dx.doi.org/10.2139/ssrn.817365

Joseph J. Kerstein

Yeshiva University - Syms School of Business ( email )

United States

Atul Rai (Contact Author)

Wichita State University ( email )

1845 Fairmount Avenue
Wichita, KS 67260-0087
United States
316-978-6251 (Phone)
316-978-3660 (Fax)

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