This post is by Phil.
I love this post by Jialan Wang. Wang “downloaded quarterly accounting data for all firms in Compustat, the most widely-used dataset in corporate finance that contains data on over 20,000 firms from SEC filings” and looked at the statistical distribution of leading digits in various pieces of financial information. As expected, the distribution is very close to what is predicted by Benford’s Law.
Very close, but not identical. But does that mean anything? Benford’s “Law” isn’t really a law, it’s more of a rule or principle: it’s certainly possible for the distribution of leading digits in financial data — even a massive corpus of it — to deviate from the rule without this indicating massive fraud or error. But, aha, Wang also looks at how the deviation from Benford’s Law has changed with time, and looks at it by industry, and this is where things get really interesting and suggestive. I really can’t summarize any better than Wang did, so click on the first link in this post and go read it. But come back here to comment!