The Wall Street Journal reports Some Companies Afflicted by 'Quadrophobia'. This reminded me of Benford's Law.
"A new study provides further evidence suggesting many companies tweak quarterly earnings to meet investor expectations, and the companies that adjust most often are more likely to restate earnings or be charged with accounting violations. The study, which examined nearly half a million earnings reports over a 27-year period, reached its conclusion by going beyond the standard per-share earnings results that are reported in pennies and analyzing the numbers down to the 10th of a cent."
"The authors' conclusions rest on a simple piece of statistical analysis. When they ran the earnings-per-share numbers down to a 10th of a cent, they found that the number '4' appeared less often in the 10ths place than any other digit, and significantly less often than would be expected by chance. They dub the effect 'quadrophobia'."
1 comment:
No need to worry people, move along....
It's just the creative financial geniuses at work for the benefit of all....
Have a nice day.
The WSJ says that most companies tweak quarterly earning to meet investor expections. The best part of the story for me is that they knew that they had to have an equal distribution at the one cent level, but didn't think that anyone would check the raw data. In my profession you potentially end up being bebarred or prosecuted for such things.
Funny thing though, as an "investor" I own directly shares of about 10 publicly traded companies, and indirectly, shares in hundreds of companies. Not a single company has ever asked me what my earnings expectations, as an "investor", are for the upcoming quarter.
The earnings forecasts are not for "investors", they are for Wall Street Analysts. Once again WSJ, with the choice of a single word - "investors" - misrepresents who drives (and controls) this quarterly earning nonsense. Do you think the Chinese worry about quarterly earning?
Just one question.
At what point does "managing the numbers" become accounting fraud?
Post a Comment