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The purpose of this paper is to examine whether Egyptian listed firms engage in earnings management to meet or beat earnings thresholds, particularly, earnings level (avoiding losses) threshold and earnings change (avoiding earnings decreases) threshold.

The paper uses the distribution of reported earnings approach, similar to Burgstahler and Dichev, to examine discontinuities around earnings thresholds as evidence on earnings management to meet or beat earnings thresholds.

The research findings reveal that there is a discontinuity in the distribution of reported earnings and earnings changes of Egyptian listed firms surrounding zero. There are too few observations immediately below zero and too many observations immediately above zero. These results suggest that Egyptian listed firms tend to engage in earnings management to avoid reporting losses and avoid reporting earnings decreases.

The paper's main limitation is the relatively small sample size given the thinness of the Egyptian capital market, therefore, the findings should be interpreted with caution.

The paper contributes to the literature by examining earnings management to meet or beat earnings thresholds in Egypt as one of the emerging markets.

The purpose of this paper is to document at the firm-specific level whether firms manage earnings up or down to barely miss or meet/beat three common earnings threshold targets, namely, analysts’ forecasts (AFs), last year’s earnings and zero earnings, and whether the market rewards or punishes up versus down earnings management.

The authors assign each firm to its most likely earnings target using an algorithm that reflects management’s economic incentives to manage earnings. The authors place reported (managed) earnings in standard width intervals surrounding the earnings target. Jacob and Jorgensen’s (2007) proxy for unmanaged earnings is also placed into the intervals. Thus, a firm with unmanaged earnings in the interval just below the target and reported earnings in the interval just above the target would be deemed to have managed earnings up. The authors also document whether the market rewarded or punished the earnings management strategy with three-day cumulative abnormal returns.

The authors find that most firms which barely meet/beat their target did so by managing earnings up. The market rewarded this earnings management strategy. The market did not, however, reward firms that managed earnings down (i.e. created a cookie jar of reserves) to barely meet/beat their target. Thus, the meet/beat premium does not apply to all firms. The authors’ explanation is that most earnings targets are set by AFs; that these are usually the highest of the three targets; and that these are, therefore, considered to be “good” firms by the market because they have the ability to find that extra penny to meet/beat the target. Firms that were assigned to the last year’s earnings and/or zero earnings thresholds are not as “good” because they usually do not target the highest threshold and must manage earnings down, as they are more likely to have to reverse income-increasing accruals booked during interim quarters.

The primary limitation in this study is the algorithm used to assign firms to their threshold target. It is ad hoc in nature, but relies on reasonable assumptions about the management’s incentives to manage earnings.

This study has practical implications because investors and regulators can adopt this methodology to identify potential candidates for earnings management that would allow further insight into accounting and reporting practices. This methodology may also be useful to the auditor who wants to understand the tendencies of a new client. It may also be a useful tool for framing auditing hypotheses in a way that would be appropriate for clients who manage earnings.

This paper documents for the first time at the firm-specific level the market reaction to upward versus downward earnings management designed to barely meet/beat the earnings threshold. It also documents the frequency with which firms target the three earnings thresholds and the frequency with which firms miss or meet/beat their threshold.

Previous research has provided mixed evidence on the relative importance of three earnings thresholds that managers seek to achieve: avoiding losses, avoiding earnings declines and avoiding negative earnings surprises. The purpose of this paper is to investigate whether firm‐specific factors influence management's preferences for an earnings threshold.

Logit models are estimated to explore the relationships between firm‐characteristics and management's perceptions of the relative importance of each threshold.

This paper finds that: large firms, firms with high growth prospects and firms with high trading volume are more concerned with avoiding negative earnings surprises, while small firms, firms with low growth prospects and firms with low trading volume are more prone to avoid earnings declines and losses; for firms with high analyst forecast accuracy (relative to a random walk model forecast), avoiding negative earnings surprises is more important than avoiding earnings declines and losses; and firms with low analyst forecast dispersion focus more on avoiding negative earnings surprises and losses, while firms with high analyst forecast dispersion focus more on avoiding earnings declines. Overall, this paper shows that firm characteristics do affect management's perceptions of the relative importance of each threshold.

This study recognizes the cross‐sectional differences in the earnings threshold hierarchy. The results suggest that regulators and practitioners should focus on different thresholds for different types of firms when investigating the mechanisms used to achieve the thresholds.

The purpose of this paper is to examine stock price crash risk (SPCR) as a function of meeting or missing three earnings thresholds – reporting a profit (earnings level), reporting an earnings increase (earnings change) and meeting analysts’ forecasts (earnings expectation).

The authors rely upon the research design of Herrmann et al. (2011) to identify the incremental impact of the earnings level and earnings change benchmarks on SPCR, after controlling for the effects of meeting or missing analysts’ expectations.

The authors find that meeting analysts’ expectations is negatively associated with SPCR, and this relationship strengthens with the magnitude of the unexpected earnings. However, the authors find little evidence of incremental threshold effects to suggest that earnings level and earnings change benchmarks are critical thresholds with respect to SPCR. Our results are robust after including a number of control variables.

This study contributes to the literature that investigates determinants of SPCR while simultaneously providing new evidence to conclusions that analysts’ earnings forecast is at the top of the earnings benchmark hierarchy.

The purpose of this paper is to investigate the spillover effects of a bright-line disclosure regulation that required Chinese listed firms to provide earnings forecasts if they anticipated specified, large earnings changes.

The paper examines the discontinuity of the earnings change distribution of firms listed on the Shenzhen Stock Market between 2010 and 2014. The paper finds that firms no longer subject to the bright-line test still exhibited discontinuity in earnings change distribution. The discontinuity lasted for at least three years with magnitude comparable to that of the firms still subject to the bright-line test. In addition, newly listed firms that had never experienced the bright-line test showed similar tendency to avoid the same threshold. There is some evidence that these firms’ avoidance of the −50 per cent changes was partly because of market pressure.

Research on bright-line tests has to date focused on their immediate and direct effects on firms currently subject to such tests. This study finds that a bright-line disclosure regulation’s influence is not limited to the firms directly governed by the regulation. It could lead to widespread and long lasting distortions in financial reporting behaviors of firms not currently subject to such tests.

The paper has implications for regulators who study the economic consequences of bright-line regulations in general and analysts of the Chinese capital market in particular.

This is the first empirical report that bright-line disclosure regulations affected the financial reporting behavior of firms that were not directly subject to the bright-line tests.

This paper aims to detect earnings management activity in different industries in Malaysia by using the earnings distribution model. Further, the prospect theory and the possible influence of various industry variables are tested to understand the role of the industry in the motivation to manage earnings among firms in Malaysia.

A sample of 538 firms from 15 different industries over the years 2005-2011 is used for this purpose. The earnings distribution model is used to detect earnings management activity across industries, and various regression techniques are used to test the influence of the prospect theory and various industry variables on earnings management activity.

The findings indicate the presence of earnings management practices in Malaysian industries, but the prevalence of earnings management activity and the motivation to do so are found to differ across industries. The prospect theory is found to be a possible motivation for earnings management overall but not when industries are considered separately. Industry competitiveness, capital intensity and profitability are found to influence both motivations to manage earnings while industry leverage is found significant only in the case of motivation to manage earnings to avoid reporting losses. Finally, earnings volatility and size are insignificant in influencing the propensity to manage earnings.

To the authors’ knowledge, this is the first study which documents the role of various industry characteristics in influencing earnings management activity. It highlights the importance of considering industry level variables in a study on earnings management and, hence, adds to the growing literature on earnings management.

In financial literature, dividend payout decisions are determined by factors such as debt, liquidity, profitability, size and risk. The purpose of this paper is to identify the effect of earnings management measured by discretionary accruals based on Dechow et al.’s (1995) model on dividend policy.

This research will use panel data analysis to test the effect of earnings management on dividend policy. The authors selected 280, French non-financial companies, listed on the CAC All Tradable index for the 2008-2015 period.

Using a sample of 2108 firm-year observations, the authors find a positive impact of earnings management on dividend policies of firms. Besides, there is a positive/negative relationship between the size of the firm and the dividend policy. Moreover, this paper has dealt with some factors such as debt, the risk of the firm and liquidity which may affect the corporate dividend policy. The results are robust as the authors adopted an additional measure of dividend policy.

The findings may have important implications for analysts, investors, regulators and academics. First, the study shows that earnings management is a common practice in the French context and constitutes a major objective of dividend policy. Better still, identifying the other variables that influence the dividend policy provides a clearer understanding of dividend policy for investors, analysts and academics alike. Second, the study provides ample evidence of agency problems between various partners in French capital markets, highlighting the necessity to establish new corporate governance mechanisms. This is highly relevant for policymakers in their quest for a better financial market.

This study extends the literature on the impact of dividend thresholds on earnings management by showing that firms run earnings to inform the market that the company can distribute dividends.

Previous research in auditing has used the probability of small profits or losses as a measure of audit quality. The purpose of this paper is to investigate the validity of the underlying assumption in prior audit literature that auditing mitigates clients’ inclination towards loss avoidance and to shed light on the debate regarding earnings discontinuity.

This paper compares the discontinuity in earnings distribution around zero, both before and after auditing.

Using a unique data set that contains both recorded and waived adjustments, the authors find that audit adjustments do not reduce the discontinuity in earnings distribution around zero.

The results advise caution in using the probability of small profits or losses as a measure of audit quality. The findings suggest the discontinuity in earnings around zero may not be caused by loss avoidance achieved through accounting misreporting, which falls under the purview of auditing.

This research makes unique contributions beyond those of prior studies. By incorporating waived adjustments, the authors are able to conduct more comprehensive tests and explore richer details of audit adjustments that were not available in previous studies. The proportion of losses in this study's sample aligns with that in prior US research, which enhances the generalisability of the authors’ findings and minimizes the influence of inherent discrepancies in auditors' motivations to curb loss avoidance.

Using UK survey data on labour force participation and earnings and a model developed by the Department for Work and Pensions, I describe the unique challenges women face in accruing private pension benefits and simulate likely outcomes for women under the Government's proposed system of personal accounts. Projections of savings in personal accounts for male and female full-time median earners with the same work histories reveal that women would have about 27 per cent less savings available for retirement due to their lower earnings. This gap would grow, to 31 per cent, upon annuititization because single-sex annuity rates are used. Additional modifications that take into account typical work patterns of women, such as extended periods of part-time work, further reduce the savings they would accumulate in personal accounts. Several key policy provisions could improve outcomes for women including allowing spousal contributions and requiring joint-life or unisex annuities.

This paper aims to examine whether external monitors (auditors and analysts) constrain earnings strings, an indicator of earnings management, and whether this monitoring is more effective after the implementation of the Sarbanes-Oxley Act of 2002 (SOX), given the emphasis of SOX on improving auditing, financial reporting and the information environment.

Agency theory establishes the premise between external monitoring and earnings strings. Auditor tenure and number of analysts following provide measures for external monitoring quality. Using prior research, empirical models explaining the presence of an earnings strings and earnings strings trend are developed to test the hypotheses.

Pre-SOX, extreme auditor tenure, indicating lower quality external monitoring, is associated with greater earnings strings trend, and analyst coverage is associated with increased likelihood of earnings strings and greater earnings strings trend consistent with analyst pressure on management. More effective auditor and analyst monitoring occurs post-SOX in terms of reduced likelihood of earnings strings and earnings strings trend.

The authors provide evidence on how elements of external monitoring are associated with increased earnings strings pre-SOX. Further, they contribute to the debate on the impact of SOX on external firm monitoring and the overall financial information environment. By focusing on earnings strings, the outcome of earnings management, the authors provide a unique understanding of external monitoring that also provides insight on the overvaluation of equity and ultimate destruction of firm value. The evidence demonstrates how regulation has contributed to an improved financial reporting environment and external monitoring.