Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Corporate Earnings: Facts and Fiction
Journal of Economic Perspectives
(pp. 27–50)
(Complimentary)
Abstract
Manipulated 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.Citation
Lev, Baruch. 2003. "Corporate Earnings: Facts and Fiction ." Journal of Economic Perspectives 17 (2): 27–50. DOI: 10.1257/089533003765888412JEL Classification
- M41 Accounting
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill