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Author: Xiaohui Liu
Publisher:
ISBN:
Category :
Languages : en
Pages : 91
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Book Description
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: Xiaohui Liu
Publisher:
ISBN:
Category :
Languages : en
Pages : 91
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Book Description
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: Yuyan Guan
Publisher:
ISBN: 9780494219447
Category :
Languages : en
Pages : 230
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Book Description
This thesis examines the determinants of analysts' reactions to firms' earnings management. I present a model showing that analysts revise their forecasts according to their forecast errors revealed by earnings announcements and reporting biases embedded in reported earnings. The model further demonstrates that the relationship between forecast revisions and reporting biases can be affected by analysts' forecasting ability, the inherent uncertainty of whether reporting biases have occurred, as well as analysts' incentives. To empirically test the model's prediction regarding analysts' forecasting ability, I use analysts' firm-specific experience, size of their brokerage firm, and the number of industries they follow as proxies. Consistent with the model's prediction, I provide evidence showing that well-experienced analysts adjust more for earnings management while analysts following a greater number of industries adjust less for earnings management. Sensitivity analysis using analyst's historical firm-specific forecast accuracy as an alternative measure of forecasting ability further supports the hypothesis that analysts with better forecasting ability adjust more for earnings management. Moreover, analysts adjust less for earnings management when the inherent uncertainty of the reporting bias is greater. Specifically, analysts adjust less for earnings management when: (1) the past volatility of discretionary accruals is high; and (2) the firm has a marked propensity to smooth earnings. There is little evidence that affiliated analysts adjust less for earnings management than unaffiliated analysts. However, analysts adjust more for earnings management in the post-Reg FD period than in the pre-Reg FD period, which is consistent with Regulation FD achieving its objective of strengthening analysts' incentives to issue unbiased forecasts.
Author: Julian Kasturiarachchige
Publisher: GRIN Verlag
ISBN: 3668486557
Category : Business & Economics
Languages : en
Pages : 64
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Book Description
Bachelor Thesis from the year 2015 in the subject Business economics - Investment and Finance, grade: 1,0, LMU Munich (Instituts für Rechnungswesen und Wirtschaftsprüfung), language: English, abstract: This study is an attempt to combine two important streams of accounting research: The problem of earnings management (hereafter EM) and the role of conference calls (hereafter CCs) as disclosure medium. In doing so, I focus on real activities manipulation (hereafter RM) through cutting R&D expenses. I contribute to the existing literature by answering two questions: Firstly, whether the risk of managers engaging in RM via R&D spending affects the probability of analysts, or management addressing those cuts during CCs. Secondly, if the analyst community benefits from such discussions, by obtaining useful information, not accessible via other information channels. To answer these questions, I examine the 4th quarter earnings conference call transcripts of 300 firm years with an increased RM risk. I use content analysis to measure analysts’ and managers’ reactions, and create dummy variables that contain the information found.
Author: Malek El Diri
Publisher: Springer
ISBN: 3319626868
Category : Business & Economics
Languages : en
Pages : 120
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Book Description
This book provides researchers and scholars with a comprehensive and up-to-date analysis of earnings management theory and literature. While it raises new questions for future research, the book can be also helpful to other parties who rely on financial reporting in making decisions like regulators, policy makers, shareholders, investors, and gatekeepers e.g., auditors and analysts. The book summarizes the existing literature and provides insight into new areas of research such as the differences between earnings management, fraud, earnings quality, impression management, and expectation management; the trade-off between earnings management activities; the special measures of earnings management; and the classification of earnings management motives based on a comprehensive theoretical framework.
Author: Julian Kasturiarachchige
Publisher: Grin Publishing
ISBN: 9783668486560
Category :
Languages : en
Pages : 64
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Book Description
Bachelor Thesis from the year 2015 in the subject Business economics - Investment and Finance, grade: 1,0, LMU Munich (Instituts fur Rechnungswesen und Wirtschaftsprufung), language: English, abstract: This study is an attempt to combine two important streams of accounting research: The problem of earnings management (hereafter EM) and the role of conference calls (hereafter CCs) as disclosure medium. In doing so, I focus on real activities manipulation (hereafter RM) through cutting R&D expenses. I contribute to the existing literature by answering two questions: Firstly, whether the risk of managers engaging in RM via R&D spending affects the probability of analysts, or management addressing those cuts during CCs. Secondly, if the analyst community benefits from such discussions, by obtaining useful information, not accessible via other information channels. To answer these questions, I examine the 4th quarter earnings conference call transcripts of 300 firm years with an increased RM risk. I use content analysis to measure analysts' and managers' reactions, and create dummy variables that contain the information found.
Author: William R. Baber
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
We investigate the consequences of earnings management by analyzing stock price reactions to on-target quarterly earnings announcements (earnings that coincide with analysts' consensus expectations) during 1993-1999. We use techniques advanced in Jones (1991), Kang and Sivaramakrishnan (1995), and Collins and Hribar (2000) to distinguish observations where firms apparently manage earnings in order to meet expectations. We find that mean security returns during the earnings announcement period are 0.18% to 0.91% less for observations where firms apparently increase earnings than for those where firms apparently decrease earnings to meet expectations. These differences are statistically significant at conventional levels. We also find that returns during the earnings disclosure period vary inversely with the extent that firms appear to manage earnings upward. Overall, the evidence suggests that market participants are aware of incentives to manage earnings to meet expectations, and that they discount managed earnings components when interpreting quarterly earnings disclosures. Finally, we point out that the issue of stock splits should be investigated with care when using published consensus analyst forecasts.
Author: Joshua Ronen
Publisher: Springer Science & Business Media
ISBN: 0387257713
Category : Business & Economics
Languages : en
Pages : 587
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Book Description
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: Nathan J. Newton
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This study investigates whether auditors respond to earnings management pressure created by analyst forecasts. Analyst forecasts create an important earnings target for management, and professional standards direct auditors to consider how this pressure could affect their clients. Using annual analyst forecasts available during the planning phase of the audit, I examine whether this form of earnings management pressure affects clients' financial statement misstatements. Next, I investigate whether auditors respond to earnings forecast pressure through audit fees and reporting delay. I find that higher levels of analyst forecast pressure increase the likelihood of client restatement. I also find that auditors charge higher audit fees and delay the issuance of the audit report in response to pressure from analyst expectations. Finally, I find that when audit clients are subject to high analyst forecast pressure, a high audit fee response by auditors mitigates the likelihood of client misstatements. The electronic version of this dissertation is accessible from http://hdl.handle.net/1969.1/151105
Author: Rustom M. Irani
Publisher:
ISBN:
Category :
Languages : en
Pages : 64
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Book Description
We study how securities analysts influence managers' use of different types of earnings management. To isolate causality, we employ a quasi-experiment that exploits exogenous reductions in analyst following resulting from brokerage house mergers. We find that managers respond to the coverage loss by decreasing real earnings management, while increasing accrual manipulation. These effects are significantly stronger among firms with less coverage and for firms close to the zero-earnings threshold. Our causal evidence suggests that managers use real earnings management to enhance short-term performance in response to analyst pressure, effects that are not uncovered when focusing solely on accrual-based methods.
Author: Hwa Deuk Yi
Publisher:
ISBN:
Category : Corporate profits
Languages : en
Pages : 236
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Book Description
