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Management's Incentives to Avoid Negative Earnings Surprises
Abstract
Recent reports in the business press allege that managers take actions to avoid negative earnings surprises. I hypothesize that certain firm characteristics are associated with greater incentives to avoid negative surprises. I find that firms with higher transient institutional ownership, greater reliance on implicit claims with their stakeholders, and higher value-relevance of earnings are more likely to meet or exceed expectations at the earnings announcement. I also examine whether firms manage earnings upward or guide analysts' forecasts downward to avoid missing expectations at the earnings announcement. I examine the relation between firm characteristics and the probability (conditional on meeting analysts' expectations) of having (1) positive abnormal accruals, and (2) forecasts that are lower than expected (using a model of prior earnings changes). Overall, the results suggest that both mechanisms play a role in avoiding negative earnings surprises.
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Cites
Regression Diagnostics: Identifying Influential Data and Sources of Collinearity
Belsley, D. A., Kuh, E., & Welsch, R. E. (1980) · Wiley Series in Probability and Statistics · doi:10.1002/0471725153 · Cited by 7,297
Cited by
Healy, P. M., & Palepu, K. G. (2001) · Journal of Accounting and Economics · doi:10.1016/s0165-4101(01)00018-0 · Cited by 8,097
Dhaliwal, D. S., Li, O. Z., Tsang, A., & Yang, Y. G. (2011) · The Accounting Review · doi:10.2308/accr.00000005 · Cited by 4,337
Opaque financial reports, R2, and crash risk☆
Hutton, A. P., Marcus, A. J., & Tehranian, H. (2009) · Journal of Financial Economics · doi:10.1016/j.jfineco.2008.10.003 · Cited by 2,768
The Relation between Auditors' Fees for Nonaudit Services and Earnings Management
Frankel, R. M., Johnson, M. F., & Nelson, K. K. (2002) · The Accounting Review · doi:10.2308/accr.2002.77.s-1.71 · Cited by 1,648
Does Stock Liquidity Enhance or Impede Firm Innovation?
FANG, V. W., TIAN, X., & TICE, S. (2014) · The Journal of Finance · doi:10.1111/jofi.12187 · Cited by 1,339
Metadata
- Authors
- Matsumoto, D. A.
- Venue
- The Accounting Review
- Publisher
- American Accounting Association
- Published
- 2002-07-01
- Volume
- 77
- Issue
- 3
- Pages
- 483-514
- ISSN
- 0001-4826 (ISSN-L)
- 1558-7967
- OpenAlex
- W2128127523
- Cited by
- 1,613
- References
- 1
- FWCI
- 156.47
- Type
- journal article
- Language
- en
- Open access
- closed
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
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