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Using a sample of approximately 87,000 earnings observations from almost 22,000 firms in 18 countries for the five-year period 1995-1999, we document firms' tendency to exercise cosmetic earnings management (CEM) worldwide. Following prior studies in the area (Thomas, 1989, among others), we define CEM by small upward rounding of reported net incom...
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Context 1
... the distribution statistics in Table 2 shows an inverse relationship between sample size and average firm size across the countries; in countries where the sample size is relatively small (like Italy, Spain, and Switzerland) the firms are, on average, larger than in countries with large sample sizes (like the U.S., Japan, the U.K., and Germany). 16 We summarize net sales and net income observations by country in Table 3. Since we have 21,662 firms in our sample, the theoretical number of observations from the five-year period 1995- 1999 ...Context 2
... result is in line with our overall expectation concerning the role of institutional settings as a determinant of firms' tendencies toward small upward rounding in reported earnings numbers. 24 The high value of CEM3 for Finland (7.72 percent) is obviously an outcome of the small sample size of negative net income observations for this country (see Table 3). 25 The primary reason for not estimating multiple regressions between the CEM measures and institutional factors is the relatively small sample size (18 countries) which, given the number of independent variables (ten factors), does not leave enough degrees of freedom for parameter estimation. ...Similar publications
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Citations
... This was detected first for firms in New Zealand where the frequency of zeros and nines as second digit of reported earnings was respectively more and less than could be expected from Benford's law [34]. Subsequently this unethical phenomenon has been reported to be the practice of the day for the firms worldwide [35]. A recent example of corporate data manipulation, on a truly global scale, is the 2011 LIBOR scandal in which a cartel of banks distorted the interest pricing process of the inter-bank loans [36]. ...
The yearly aggregated tax income data of all, more than 8000, Italian
municipalities are analyzed for a period of five years, from 2007 to 2011, to
search for conformity or not with Benford's law, a counter-intuitive phenomenon
observed in large tabulated data where the occurrence of numbers having smaller
initial digits is more favored than those with larger digits. This is done in
anticipation that large deviations from Benford's law will be found in view of
tax evasion supposedly being widespread across Italy. Contrary to expectations,
we show that the overall tax income data for all these years is in excellent
agreement with Benford's law. Furthermore, we also analyze the data of
Calabria, Campania and Sicily, the three Italian regions known for strong
presence of mafia, to see if there are any marked deviations from Benford's
law. Again, we find that all yearly data sets for Calabria and Sicily agree
with Benford's law whereas only the 2007 and 2008 yearly data show departures
from the law for Campania. These results are again surprising in view of
underground and illegal nature of economic activities of mafia which
significantly contribute to tax evasion. Some hypothesis for the found
conformity is presented.
This study proposes a weighted rounded departure time (wRDT) index to measure the quality of travel surveys. This index is an extension of Whipple's index, used in demographic studies to measure age heaping. A comparison was made between the quality of 23 travel surveys conducted by Japan International Cooperation Agency in developing countries using the proposed index, and the differences in the rounding in the reported trip departure times were analyzed. The result yielded three findings. First, age heaping in the travel surveys was higher than that in the census in most cities. Second, rounding departure time to 15 min steps was fewer in East Asian cities. Finally, age heaping and departure time rounding to 60 min were higher in South Asian and African cities. Furthermore, a comparison of wRDT indices between both genders indicated a difference in rounding: female respondents were less likely to round their responses than males.
On the occasion of the 125-th anniversary of Newcomb's paper, a bibliography of academic work related to Benford's law from its year of origin 1881 to 2006 has been compiled.
