The computation of each variable and its Compustat number are in the notes to Table 2.
■ Days’ sales in receivables index. The DSRIis the ratio of days’ sales in receivables in the first year in which earnings manipulation was uncovered (yeart) to the corresponding measure in yeart – 1. This variable gauges whether receivables and revenues are in or out of balance in two consecutive years. A large increase in days’ sales in receivables could be the result of a change in credit policy to spur sales in the face of increased competition, but disproportionate increases in receivables relative to sales could also suggest revenue inflation. Thus, I expected a large increase in the DSRI to be associated with a higher likelihood that revenues and earnings are overstated.