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Aineas Kostas Mallios
''Manipulation in reported dividends: Empirical evidence from US banks''
( 2023, Vol. 43 No.1 )
Based on a sample of US banks, and adopting Benford's law, regarding the distribution of digits of random numbers, I analyse reported dividends per share (DPS). I find uncommon patterns of significant digits of reported DPS that depart from the expected frequency based on Benford's law. I argue that the data may have been transformed to conceal the real financial conditions of the sample institutions. I show that the observed distribution of digits in the second place of DPS deviates significantly from Benford's law, especially for banks with high stock price volatility. I also find that banks report DPS with frequencies of second-place digits that deviate significantly from Benford's expected frequencies, regardless of whether they are large or small, and listed or not. Finally, I find no evidence that banks undertake less manipulation in the fourth quarter, which is audited, than in the previous three quarters. Misreporting dividends to conceal or improve true financial performance affects the decision-making of investors and financial analysts.
Keywords: Benford's law, managerial rounding-up, digital analysis
JEL: G3 - Corporate Finance and Governance: General
M4 - Accounting and Auditing: General
Manuscript Received : Nov 04 2022 Manuscript Accepted : Mar 30 2023

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