The Power of Numbers : Base-Ten Threshold Effects in Reported Revenue

We document that managers have a propensity to disproportionately report total revenue numbers just above base-ten thresholds (e.g., ten million, thirty million, one billion). Further tests investigate whether managers are motivated to beat these thresholds because of pressure to beat revenue targets set in executive compensation contracts, analyst forecasts, or a manager's own forecasts. We document that base-ten thresholds are unusually prevalent in all three types of revenue forecasts; however, these incentive effects do not offer a complete explanation because threshold beating behavior is observed even in the absence of these targets. We find firms that beat a base-ten threshold for the first time experience an increase in visibility across a wide range of channels even after controlling for whether they have beaten other common benchmarks. Specifically, news coverage, institutional ownership, liquidity, and analyst following increase in the years immediately after a threshold is attained. The salience of beating these thresholds appears to increase investor recognition of these firms