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Implications of the integral approach and earnings management for alternate annual reporting periods

Gunny, Katherine A., Jacob, John and Jorgensen, Bjorn N. (2013) Implications of the integral approach and earnings management for alternate annual reporting periods. Review of Accounting Studies, 18 (3). pp. 868-891. ISSN 1380-6653

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Identification Number: 10.1007/s11142-013-9235-x


We compare the last 12 months’ earnings ending in quarter four (i.e., fiscal year earnings), three, two and one. Lipe and Bernard (2000) offer two competing explanations for higher volatility in fourth quarter earnings relative to other quarters. First, under the integral approach, any estimation errors in the earlier quarters are corrected through fourth quarter earnings, which could make them more volatile. Second, earnings management concentrated in the fourth quarter renders fourth quarter earnings more volatile. While both explanations have similar implications for the properties of quarterly earnings, their implications differ for the properties of annual earnings ending in each quarter. Our result comparing earnings variability is more consistent with earnings management than the integral approach. We examine the relative earnings attributes and find that fiscal year earnings attributes rank lower. Finally, we re-investigate the accrual anomaly and find that the accrual anomaly is more pronounced for fiscal year earnings.

Item Type: Article
Official URL:
Additional Information: © 2013 Springer Science+Business Media New York
Divisions: Accounting
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
M - Business Administration and Business Economics; Marketing; Accounting > M4 - Accounting and Auditing > M41 - Accounting
Date Deposited: 01 Aug 2013 13:25
Last Modified: 16 May 2024 01:40
Funders: Tisone chair

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