Clustering in dividends: Do managers rely on cognitive reference points?

Aerts, Walter; Campenhout, Geert Van; Caneghem, Tom Van

doi:10.1016/j.joep.2007.10.003

Cited by 21 publications

(18 citation statements)

References 39 publications

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“…That is, in line with results reported in the current paper, Aerts et al (2008) observe significantly more zeroes and fives in the second position of dividends per share for a sample of US firms. As discussed by Aerts et al (2008), the observed deviation for fives in the second position suggests that (certain) managers believe that FS users adopt a rounding rule to assess the magnitude of a given number (see e.g., Ashworth et al 2003) instead of the generally documented truncation strategy. Adopting a rounding strategy, a FS user will first round a reported figure of 1516 Euro (1487 Euro) to 2000 Euro (1000 Euro) instead of merely considering the first digit in order to assess its magnitude.…”

Section: Full Samplesupporting

confidence: 93%

“…That is, observing significantly more zeroes in the second position is consistent with an abnormally large amount figures just exceeding a cognitive reference point and thus rounding-up behavior. While the observed deviation for fives in the second position appears to conflict with the aforementioned arguments, it is consistent with prior empirical evidence reported by Aerts et al (2008). That is, in line with results reported in the current paper, Aerts et al (2008) observe significantly more zeroes and fives in the second position of dividends per share for a sample of US firms.…”

Section: Full Samplesupporting

confidence: 90%

“…While the observed deviation for fives in the second position appears to conflict with the aforementioned arguments, it is consistent with prior empirical evidence reported by Aerts et al (2008). That is, in line with results reported in the current paper, Aerts et al (2008) observe significantly more zeroes and fives in the second position of dividends per share for a sample of US firms. As discussed by Aerts et al (2008), the observed deviation for fives in the second position suggests that (certain) managers believe that FS users adopt a rounding rule to assess the magnitude of a given number (see e.g., Ashworth et al 2003) instead of the generally documented truncation strategy.…”

Section: Full Samplesupporting

confidence: 90%

See 2 more Smart Citations

NPO Financial Statement Quality: An Empirical Analysis Based on Benford’s Law

Caneghem

2015

Voluntas

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In order to assess the accuracy of the figures reported in NPOs' financial statements, I perform a digital analysis on Belgian non-profit organizations' financial statements for accounting years 2007 up to 2012. Specifically, I compare observed frequencies for digits in the second-from-the-left position with expected frequencies based on Benford's Law. Results based on the full sample indicate that observed frequencies strongly conform to Benford's Law (and thus suggest a high degree of accuracy of the figures reported in NPOs' financial statements). Nevertheless, I note statistically significant deviations from Benford's Law (both for the entire distribution and at the individual digit level). The largest deviation is noted for zeroes in the second position (i.e., a significantly positive deviation), which can be explained based on humans' reliance upon so-called cognitive reference points. Considering different sub-samples, I note that observed deviations from Benford's Law are largest for the smallest non-profits and those non-profits that rely most heavily on grants and/or donations.Résumé Afin d'évaluer l'exactitude des chiffres indiqués dans les états financiers des organisations à but non lucratif, j'effectue une analyse numérique des états financiers des OBNL belges pour les exercices 2007 à 2012. Plus précisément, je compare les fréquences observées des chiffres en deuxième position en partant de la gauche avec les fréquences attendues sur la base de la loi de Benford. Les résultats établis sur l'ensemble de l'échantillon indiquent que les fréquences observées sont fortement conformes à la loi de Benford (et semblent donc indiquer un degré élevé d'exactitude des chiffres déclarés dans les états financiers des OBNL). Néanmoins, je constate des écarts significatifs du point de vue statistique par rapport à la loi de Benford (tant pour toute la répartition qu'au niveau des chiffres individuels). Le & Tom Van Caneghem tom.vancaneghem@kuleuven.be 1 KU Leuven, plus grand écart se reconnaît par des zéros en deuxième position (soit un écart positif significatif), qui peut s'expliquer par le recours des humains à ce que l'on appelle les repères cognitifs. Compte tenu des sous-échantillons différents, je remarque que les écarts observés par rapport à la loi de Benford sont plus grands pour les petites organisations à but non lucratif et pour celles qui dépendent le plus des subventions ou des dons. Zusammenfassung Mittels einer digitalen Analyse der Jahresabschlüsse belgischer gemeinnütziger Organisationen für die Geschäftsjahre 2007 bis 2012 prüfe ich die Richtigkeit der in den Jahresabschlüssen dieser Organisationen ausgewiesenen Zahlen. Ich vergleiche insbesondere die beobachtete Häufigkeit der Ziffern an der zweiten Stelle von links, wobei für die erwartete Häufigkeit das Benfordsche Gesetz angewandt wird. Die Ergebnisse aus der gesamten Stichprobe zeigen, dass die beobachtete Häufigkeit dem Benfordschen Gesetz starkentspricht (und somit auf ein hohes Maß an Richtigkeit der in den Jahresabschlüssen der gemeinn...

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Section: Full Samplesupporting

confidence: 93%

Section: Full Samplesupporting

confidence: 90%

Section: Full Samplesupporting

confidence: 90%

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NPO Financial Statement Quality: An Empirical Analysis Based on Benford’s Law

Caneghem

2015

Voluntas

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“…frequently on the Internet (all websites) than other numbers; stock prices and trade amounts tend to cluster around them; and corporate managers rely on them when setting dividend amounts (Aerts et al 2008;Converse & Dennis 2018;Dorogovtsev et al 2006;Gu et al 2008;Harris 1991).…”

Section: Preferred Numbers Just Noticeable Differences and Logarmentioning

confidence: 99%

Criminal Sentencing by Preferred Numbers

Dhami¹,

Belton²,

Merrall³

et al. 2020

J Empirical Legal Studies

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Criminal sentencing is a complex cognitive activity often performed by the unaided mind under suboptimal conditions. As such, sentencers may not behave according to policy, guidelines, or training. We analyzed the distribution of sentences meted out in one year in two different jurisdictions (i.e., England and Wales, and New South Wales, Australia). We reveal that sentencers prefer certain numbers when meting out sentence lengths (in custody and community service) and amounts (for fines/compensation). These “common doses” accounted for over 90 percent of sentences in each jurisdiction. The size of these doses increased as sentences became more severe, and doses followed a logarithmic pattern. Our findings are compatible with psychological research on preferred numbers and are reminiscent of Weber's and Fechner's laws. The findings run contrary to arguments against efforts to reduce judicial discretion, and potentially undermine the notion of individualized justice, as well as raise questions about the (cost) effectiveness of sentencing.

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“…This recognition casts serious doubt on the validity of tests that assumed uniformity. Studies have also suggested that accruals are tools for managers to manage the reported earnings figures (e.g., Aerts et al 2008). There is evidence that managers made some adjustments to accounting accruals to boost the firms' earnings relative to actual cash flow (Hirshleifer 2001).…”

Section: Literature Reviewsmentioning

confidence: 99%

Earnings Management and Investor's Stock Return

Lin

Fang

2012

Emerging Markets Finance and Trade

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This study investigates the effect of window dressing by Taiwanese firms on investors' stock returns. The second digit of the earnings reported as earnings before interest and tax, earnings after interest and tax, or earnings per share is found to occasionally serve as the reference point. In addition, the manipulation of earnings management shows a negative relationship between earnings management and investor stock returns. Such findings have important implications for investing decisions made by Taiwanese stockholders, who traditionally have concerns about the quality of a firm's financial statements.

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Clustering in dividends: Do managers rely on cognitive reference points?

Cited by 21 publications

References 39 publications

NPO Financial Statement Quality: An Empirical Analysis Based on Benford’s Law

NPO Financial Statement Quality: An Empirical Analysis Based on Benford’s Law

Criminal Sentencing by Preferred Numbers

Earnings Management and Investor's Stock Return

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