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Finally, lest you think from the previous cases that information manipulation is made in the United States, thirty countries, mostly developed, suffer from more acute cases of manipulitis (see figure 3-1). The researchers producing the graph in the figure, Christian Leuz, Dhananjay Nanda, and Peter Wysocki, developed an earnings manipulation score that reflects various characteristics of managed earnings, such as high volatility relative to cash flows (managed earnings deviate from cash flows more than truthful earnings) and loss avoidance (managed earnings frequently transform small losses to profits).²⁹ By this score, earnings management is, surprisingly, less prevalent in the United States than in other countries, including Switzerland, Denmark, Germany, Japan, and the United Kingdom. Nor are manipulations by large companies restricted to the United States. Royal Dutch Shell (U.K. and the Netherlands); Parmalat (Italy); Nortel (Canada); Nikko Cordial, Sanyo Electric, and Livedoor (Japan); Bawag Bank (Austria); and Ahold (the Netherlands)—a very partial list of sizeable offenders—attest to the globalization of information manipulation. And yet, not being the worst offender is, of course, hardly a consolation for Americans.

FIGURE 3-1

Earnings management around the world

AGGREGATE EARNINGS MANAGEMENT SCORE

Source: Christian Leuz, Dhananjay Nanda, and Peter Wysocki, “Earnings management and investor protection: An international comparison,” working paper, Wharton School of the University of Pennsylvania, 2002.