We use Benford's Law to provide evidence that German firms round up both their net income and earnings per share. We use the introduction of the euro to show that round earnings numbers are likely the result of earnings management. The incentive to round up comes from stakeholders’ left‐digit bias when processing the information in financial statements. Since round numbers are natural benchmarks, stakeholders perceive the performance metrics directly below such thresholds as abnormally lower. However, rounding up is objectionable only if it involves large‐scale earnings management, but not in cases of negligible ‘earnings cosmetics’. Because the difference between the pre‐managed and reported earnings is unobservable, we investigate whether the prevalence of rounding up coincides with specific levels of several earnings characteristics and proxies for audit quality. If the rounding up is cosmetic, then it should occur independently of these characteristics. In contrast, if firms use earnings management on a larger scale, then it might not be possible to simultaneously round up and achieve other objectives of earnings management. Our evidence is in line with substantial earnings management.

中文翻译：

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汇总德国公司的绩效指标：收益化妆品还是更大规模的收益管理？

我们使用本福德定律提供证据，证明德国公司将其净收入和每股收益都进行了四舍五入。我们使用欧元的介绍来表明整数收益数很可能是收益管理的结果。进行汇总的动机来自于利益相关者在处理财务报表中的信息时的左位数偏差。由于整数是自然的基准，因此利益相关者将直接低于此类阈值的绩效指标视为异常低。但是，只有在涉及大规模收益管理的情况下，舍入才是令人反感的，而在“收益化妆品”可以忽略的情况下，则是不可接受的。由于预管理收入和报告收入之间的差异是不可观察的，我们调查了四舍五入的发生率是否与某些收入特征和审计质量代理的特定水平相吻合。如果舍入是化妆品，则应独立于这些特征而进行。相反，如果公司更大规模地使用盈余管理，则可能无法同时四舍五入并实现盈余管理的其他目标。我们的证据与大量盈余管理相符。