Round number reference points and irregular patterns in reported gross margins

Abstract We find irregular patterns in the distribution of firms’ reported quarterly gross margin percentages. Specifically, there is significant bunching around percentage integers that are highly round (e.g., multiples 10, such as 30%, 40%, etc.) or neatly divisible 25%, 75%), compared to what predicted by counterfactual distributions. Further investigation reveals firms smaller, exert higher effort, achieve productivity, have more difficult goals, and pay their CEOs with a portion fixed income. also margins associated superior performance. Additionally, we do not consistent evidence reference points linked external rewards. Collectively, our reference-dependent preferences for likely being driven intrinsic (rather than extrinsic) motivations.