Earnings Forecast Earnings Management And Asymmetric Price Response
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| Author | : Baohua Xin |
| Publisher | : ProQuest |
| Total Pages | : 144 |
| Release | : 2008 |
| Genre | : |
| ISBN | : 9780549630784 |
The empirical evidence on earnings management and the corresponding stock price response to earnings announcements has consistently uncovered two important regularities: Missing an earnings target triggers a large and disproportionate negative stock price response, while exceeding such a target meets with only a moderate increase in stock price; and firms seem to manipulate and stretch their announced earnings in order to meet or beat earnings targets. I seek a rational explanation that connects these regularities by formulating an analytical model of earnings forecasts, mandatory earnings announcements and stock price behavior. I show that there is a kink in the distribution of reported earnings located close to but to the left of the earnings forecast. I also show the equilibrium stock price schedule is much steeper when reported earnings lie below the forecast than when reported earnings lie above the forecast. Additionally, there is a discrete jump in the stock price when reported earnings equal the forecast. These results help shed light on many puzzling empirical findings.
| Author | : Hwa Deuk Yi |
| Publisher | : |
| Total Pages | : 236 |
| Release | : 1994 |
| Genre | : Corporate profits |
| ISBN | : |
| Author | : Joshua Ronen |
| Publisher | : Springer Science & Business Media |
| Total Pages | : 587 |
| Release | : 2008-08-06 |
| Genre | : Business & Economics |
| ISBN | : 0387257713 |
This book is a study of earnings management, aimed at scholars and professionals in accounting, finance, economics, and law. The authors address research questions including: Why are earnings so important that firms feel compelled to manipulate them? What set of circumstances will induce earnings management? How will the interaction among management, boards of directors, investors, employees, suppliers, customers and regulators affect earnings management? How to design empirical research addressing earnings management? What are the limitations and strengths of current empirical models?
| Author | : Xiaohui Liu |
| Publisher | : |
| Total Pages | : 91 |
| Release | : 2004 |
| Genre | : |
| ISBN | : |
Previous literature studies analysts' earnings forecasts without considering firms' response to analysts' forecasts. This study improves upon previous research by considering firms' earnings management with respect to analysts' forecasts. I hypothesize that analysts understand these earnings management practices, and incorporate firms' expected behavior into their forecasts. I demonstrate that for firms with high tendencies and flexibilities to manage earnings downwards, and/or firms with negatively skewed earnings, analysts account for earnings management practices by lowering the otherwise optimal forecasts. Comparing analysts' consensus forecasts with proxy for non-strategic forecasts (otherwise optimal forecasts), I find that analysts' forecasts are systematically below the non-strategic forecasts for firm-quarters that have: high accounting reserves available to manage earnings downwards, high unmanaged earnings, low debt to equity ratios, negative forecasted earnings, and negatively skewed unmanaged earnings. These results suggest that analysts forecast below the non-strategic level in order to avoid the large optimistic forecast errors that occur when firms who cannot meet forecasts manage earnings downward. The test results also suggest that analysts forecast above the non-strategic forecasts when earnings are positively skewed, and/or when firms have high tendencies and flexibilities to manage earnings upwards.
| Author | : Russell Theodore Gingras |
| Publisher | : |
| Total Pages | : 384 |
| Release | : 1974 |
| Genre | : Business forecasting |
| ISBN | : |
| Author | : Lise Newman Graham |
| Publisher | : |
| Total Pages | : 334 |
| Release | : 1993 |
| Genre | : Corporate profits |
| ISBN | : |
| Author | : Kai Du |
| Publisher | : |
| Total Pages | : 53 |
| Release | : 2019 |
| Genre | : |
| ISBN | : |
This paper examines the implications of investor expectations for the joint determination of earnings manipulation and asset prices. Three alternative models of investor expectations are studied: constant-gain learning, regime-shifting beliefs, and accounting-information-system (AIS) beliefs. I use the simulated method of moments (SMM) to estimate the most plausible model that matches the actual data. AIS beliefs and regime-shifting beliefs are shown to best explain the empirical moments of 63 percent and 32 percent of S&P 500 firms, respectively. Regression analysis suggests that the three models offer different predictions on the existence and magnitude of several empirical regularities including a positive earnings response coefficient, the discretionary accruals anomaly, and return momentum.
| Author | : Ki Choong Han |
| Publisher | : |
| Total Pages | : 318 |
| Release | : 1990 |
| Genre | : Corporate profits |
| ISBN | : |
| Author | : Oliver Heinrich |
| Publisher | : |
| Total Pages | : |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
This paper investigates the prevalence of earnings management in the S&P 1500 Super Composite over the period from 1998 to 2013 and the stock price reaction to earnings management. We analyze the frequency distribution of earnings at the zero earnings, zero earnings growth, and zero earnings surprise threshold and find evidence of earnings management at all three thresholds. Using an event study, we show that managers are incentivized by the market to beat earnings estimates, but also present evidence that the market penalizes accrual-based earnings management. Our results suggest that the market does not fully anticipate the implications of earnings management at the announcement date, which leads to abnormal returns in the post-announcement period. We conclude that - with regard to the stock price - it does not make sense for managers to manage earnings through accruals. However, there may still be profitable opportunities for stock traders if they can exploit the lagged market response to earnings management.
| Author | : Yongtae Kim |
| Publisher | : |
| Total Pages | : 45 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
This study examines the stock-price reactions to analyst forecast revisions around earnings announcements to test whether pre-announcement forecasts reflect analysts' private information or piggybacking on confounding events and news. We find that management earnings forecasts influence the timing and precision of analyst forecasts. More importantly, evidence suggests that prior studies' finding of weaker (stronger) stock-price responses to forecast revisions in the period immediately after (before) the prior-quarter earnings announcement disappears once management earnings forecasts are controlled for. To the extent that management earnings forecasts are public disclosures, our results suggest that the importance of analysts' information discovery role documented in prior studies is likely to be overstated.
