Round-Off Bias In Earnings-Per-Share Calculations

Abstract

Using data available on Standard and Poor’s Compustat Data Files, this study provides overwhelming evidence that managers of public corporations bias the round-off of EPS calculations. In addition, the study reports that the incidence of EPS round-ups is associated with factors affecting differences in the “value” of EPS round-ups to managers, e.g., differences in Price-Earnings ratios, differences in absolute EPS levels, and whether a profit or loss is reported.