Earnings Rounding-up Behavior and Earnings Management

This research starts with the assumption that, in Taiwanese companies listed as "Emerging," earnings are manipulated to surpass a cognitive reference point denoted by ¡uN*10k¡v, as has been documented by Carslaw (1988) and Thomas (1989). This paper investigates whether similar manipulation exists in companies listed as TSEC and TOC listed as well. Furthermore, we extend Carslaw's (1988) and Thomas's (1989) research by examining whether managers manipulate discretionary accruals (DAs) and working capital items, representing relatively low earnings management costs to make earnings exceed such a cognitive reference point. The result shows that the listed companies of Taiwan manipulate earnings to surpass this cognitive reference point. However, this phenomenon is less significant for negative earnings than it is for positive earnings. This phenomenon is even more significant for listed companies than for emerging companies. Finally, the higher the levels of DA and working capital are, the more significant such phenomena are; this implies that DA and working capital items are used to round up earnings, and managers report earnings numbers that exceed the cognitive reference point.