The Power Of Numbers: Base-Ten Threshold Effects In Reported Revenue

2015-09-20 16:16:49

Dear students, faculty and staff,

Nazarbayev University Graduate School of Business invites you to Lunch-time Research Seminar


by Earl K. Stice 

WHEN: Wednesday, February 24th, 12.00 – 13.00

WHERE: Block C-3/new GSB/GSPP Building, 3rd floor, Room 3.037

Seminar Announcement-Stice


We provide evidence that managers have a revealed preference for reporting total revenue numbers just above base-ten thresholds. These base-ten thresholds take the general form of N × 10K, where N and K are integers. Examples are $10 million (1 × 107) and $4 billion (4 × 109). This result is robust to controlling for discontinuities found in naturally occurring numbers (Benford’s Law), and is observed in many countries for firms reporting in a variety of currencies. Our result is consistent with a literature in psychology demonstrating that humans are susceptible to a cognitive bias associated with prominent numerical reference points. However, our result is also consistent with rational revenue management behavior on the part of managers. We show that firms which exceed base-ten thresholds benefit from increased press coverage. Analyst revenue forecasts also exhibit this regularity, especially in early forecasts when greater uncertainty can potentially induce analysts to rely to a greater extent on heuristics, suggesting that managers may be managing reported revenue numbers to meet externally-determined base-ten-influenced benchmarks. In addition, the effect that we document is strongest for firms for which the market has expectations of high current or future revenue growth. Lastly, we find that the revenue growth needed to reach a base-ten threshold is not sustainable; firms which just exceed base-ten thresholds have lower subsequent revenue growth relative to firms in a control sample. Given that managers engage in extra, and, on average, unsustainable efforts to increase revenues to reach base-ten thresholds, our results suggest that lenders, investors, auditors, and regulators should apply an extra degree of skepticism when a reported revenue number just exceeds a base-ten threshold.


Earl K. Stice is Distinguished Professor, Chair of Accounting and Finance, the Ernst & Young Professor of Accounting and Finance at Nazarbayev University. He holds bachelor’s and master’s degrees from Brigham Young University and a Ph.D. from Cornell University.  Dr. Stice has been on the faculty at Rice University, the University of Arizona, Cornell University, the Hong Kong University of Science and Technology (HKUST), and Brigham Young University (where he was the PricewaterhouseCoopers Professor of Accounting).  Dr. Stice has also taught in a variety of executive education and corporate training programs in the United States, Hong Kong, China, Russia, Singapore, Malaysia, France, and South Africa. He is currently on the executive MBA faculty of the China Europe International Business School (CEIBS) in Shanghai, HKUST in Hong Kong, and the Moscow School of Management (SKOLKOVO). In the Kellogg-HKUST EMBA program, which has been ranked #1 in the world (by the Financial Times) five times in the past six years, Dr. Stice has twice been selected by the graduating class as the program’s outstanding faculty member. Dr. Stice is co-author of Intermediate Accounting, 19th edition; Accounting: Concepts and Applications, 11th edition; and Financial Accounting: Reporting and Analysis, 7th Edition. He is also the co-creator (with his brother Jim) of the online Financial and Managerial Accounting courses at and of a number of accounting and finance online courses at