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Earnings Forecast Earnings Management And Asymmetric Price Response
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Book Synopsis Earnings Forecast, Earnings Management, and Asymmetric Price Response by : Baohua Xin
Download or read book Earnings Forecast, Earnings Management, and Asymmetric Price Response written by Baohua Xin and published by ProQuest. This book was released on 2008 with total page 144 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Earnings Management by : Joshua Ronen
Download or read book Earnings Management written by Joshua Ronen and published by Springer Science & Business Media. This book was released on 2008-08-06 with total page 587 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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?
Book Synopsis Management Earnings Forecasts by : Hwa Deuk Yi
Download or read book Management Earnings Forecasts written by Hwa Deuk Yi and published by . This book was released on 1994 with total page 236 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Analysts' Response to Earnings Management by : Xiaohui Liu
Download or read book Analysts' Response to Earnings Management written by Xiaohui Liu and published by . This book was released on 2004 with total page 91 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Earnings Management of Firms in Response to Price Regulation by : S. Lim
Download or read book Earnings Management of Firms in Response to Price Regulation written by S. Lim and published by . This book was released on 1996 with total page 368 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Stock Price Reaction to Quarterly Earnings Announcements with Respect of Outlook Changes and Deviation to Consensus Forecast by : Benjamin Schmitt
Download or read book Stock Price Reaction to Quarterly Earnings Announcements with Respect of Outlook Changes and Deviation to Consensus Forecast written by Benjamin Schmitt and published by . This book was released on 2015-06-12 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bachelor Thesis from the year 2008 in the subject Business economics - Investment and Finance, grade: 1.1, EBS European Business School gGmbH (Finance), language: English, abstract: Many authors have already studied about stock price reactions after earnings announcements yet, which is because of the importance of earnings announcements, in particular quarterly earnings announcements, for many investors. However, all major studies concerning this topic deal with long-term scenarios, the stock's price performance is measured for a time period of at least three quarters. Due to the fact that there are many investors, especially institutional investors such as hedge funds that trade stocks much more frequently, the existing studies are not relevant for them. This paper studies stock price reactions around quarterly earnings announcements for companies listed in Deutscher Aktienindex (DAX) or Midcap DAX (MDAX) with respect to changes of the company's full-year outlook and of earnings surprise regarding analyst consensus forecast within ten days before and after the announcement date. Hence, this paper aims to analyse short-term reaction to quarterly earnings announcements, which are of relevance for all investors, whose investment strategy is, at least partially, focussing on the short-term performance. The main target group of this analysis are therefore hedge funds and investors that run short-term strategies. Due to the fact that the widespread Event Study Methodology is focused on the long-term, it is irrelevant for this analysis.
Book Synopsis Management Earnings Forecasts During Price Pressure by : Igor Kadach
Download or read book Management Earnings Forecasts During Price Pressure written by Igor Kadach and published by . This book was released on 2017 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Does a company's stock mispricing influence its decision to issue an earnings forecast? Does executive compensation affect the nature of the forecast? How does the market react to these forecasts? I address these questions using cross-sectional and time-series variation in stock mispricing related to the liquidity-driven trades of mutual funds. I find that managers issue earnings forecasts more frequently when their company's stock appears mispriced. In answering the second question, I uncover unintended consequences of executive compensation schemes, in that managers of mispriced firms strategically withhold information from investors to benefit from stock option exercises. I also show that in responding to forecasts of mispriced firms, investors act as if they are able to distinguish informative management earnings forecasts from uninformative ones. Finally, the difference-in-differences estimations lend credibility to the results by exploiting the exogenous fund outflows due to the 2003 mutual fund trading scandal. Collectively, my findings highlight the interplay between stock mispricing, managerial earnings forecast incentives, the company's resulting disclosure policy, and the market reaction to it.
Book Synopsis Management Earnings Forecasts and Value of Analyst Forecast Revisions by : Yongtae Kim
Download or read book Management Earnings Forecasts and Value of Analyst Forecast Revisions written by Yongtae Kim and published by . This book was released on 2014 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis The Magnitude and Timing of Analyst Forecast Response to Quarterly Earnings Announcements by : Lise Newman Graham
Download or read book The Magnitude and Timing of Analyst Forecast Response to Quarterly Earnings Announcements written by Lise Newman Graham and published by . This book was released on 1993 with total page 334 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Routledge Companion to Financial Accounting Theory by : Stewart Jones
Download or read book The Routledge Companion to Financial Accounting Theory written by Stewart Jones and published by Routledge. This book was released on 2015-05-22 with total page 559 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial accounting theory has numerous practical applications and policy implications, for instance, international accounting standard setters are increasingly relying on theoretical accounting concepts in the creation of new standards; and corporate regulators are increasingly turning to various conceptual frameworks of accounting to guide regulation and the interpretation of accounting practices. The global financial crisis has also led to a new found appreciation of the social, economic and political importance of accounting concepts generally and corporate financial reporting in particular. For instance, the fundamentals of capital market theory (i.e. market efficiency) and measurement theory (i.e. fair value) have received widespread public and regulatory attention. This comprehensive, authoritative volume provides a prestige reference work which offers students, academics, regulators and practitioners a valuable resource containing the current scholarship and practice in the established field of financial accounting theory.
Book Synopsis Effects of Earnings Management Strategy on Earnings Predictability by : Leon Li (College teacher)
Download or read book Effects of Earnings Management Strategy on Earnings Predictability written by Leon Li (College teacher) and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "This study argues that the managerial choice of earnings management strategy maybe contingent upon a firm's information asymmetry and such a strategy affects the firm's earnings predictability. Measuring information asymmetry by earnings predictability based on the subsequent dispersion in analysts' forecasts and employing a quantile regression to analyze28,383 U.S. firm-year observations obtained from 1988 to 2014, this study reports that the effect of earnings management strategy on earnings predictability is non-uniform. Specifically,the amount of absolute discretionary accruals negatively (positively) relate to the subsequent dispersion in analysts' forecasts in the low (high) quantiles of the latter. These results support our hypothesis that a firm may implement efficient or opportunistic earnings management strategies according to the degree of information asymmetry between the firm's management and corporate outsiders. Keywords: Discretionary accruals, analysts' forecasts dispersion, quantile regression"--Page [ii].
Book Synopsis Earnings Quality by : Jennifer Francis
Download or read book Earnings Quality written by Jennifer Francis and published by Now Publishers Inc. This book was released on 2008 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
Book Synopsis Expecting to Be Surprised by : Katrina Ellis
Download or read book Expecting to Be Surprised written by Katrina Ellis and published by . This book was released on 2006 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: It has been well-documented that prices respond quickly, if not completely, to the information in quarterly earnings announcements. In this paper we show that after conditioning on past earnings surprises, companies that meet analyst expectations have positive (negative) returns following a prior negative (positive) surprise. We attribute this price response to investors expecting to be surprised, in that they expect past earnings surprises to continue into the future. As meeting expectations is a reversal of the surprise trend, the investors react to this new information by reversing the price trend. The price response to meeting earnings forecasts appears to be due to investor overreaction, with subsequent returns undoing the overreaction.
Book Synopsis Economic Uncertainty and Earnings Management by : Luke C. D. Stein
Download or read book Economic Uncertainty and Earnings Management written by Luke C. D. Stein and published by . This book was released on 2016 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the presence of managerial short-termism and asymmetric information about skill and effort provision, firms may opportunistically shift earnings from uncertain to more certain times. We document that firms report more negative discretionary accruals when financial markets are less certain about their future prospects. Stock-price responses to earnings surprises are moderated when firm-level uncertainty is high, consistent with performance being attributed more to luck rather than skill and effort, which can create incentives to shift earnings toward lower-uncertainty periods. We show that the resulting opportunistic earnings management is concentrated in CEOs, firms, and periods where such incentives are likely to be strongest: (1) where CEO wealth is sensitive to change in the share price, (2) where announced earnings are particularly likely to be an important source of information about managerial ability and effort, and (3) before implementation of Sarbanes-Oxley made opportunistic earnings management more challenging. Our evidence highlights a novel channel through which uncertainty affects managerial decision making in the presence of agency conflicts.
Book Synopsis An Empirical Test of Learning in Management Earnings Forecasts by : Yuan Shi (Ph.D.)
Download or read book An Empirical Test of Learning in Management Earnings Forecasts written by Yuan Shi (Ph.D.) and published by . This book was released on 2019 with total page 98 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation examines whether managers issuing earnings guidance learn from the forecast errors in prior earnings guidance issued by them. Using data on quarterly earnings forecasts issued by managers during the period from 2001 to 2016, I find results that are consistent with managers learning from their previous forecast errors to improve their forecast accuracy. However, the intensity of the managers' reactions to previous forecast errors is asymmetric. Consistent with prior literature that emphasizes the importance of meeting or beating forecasts for managers, certain managers that miss their own forecasts tend to be conservative enough in their future forecasts to avoid missing their own forecasts again. However, as expected, when the managers have met or beaten their previous forecasts, they have a smaller forecast error, but they still beat their previous forecasts. Additional analysis suggests that these effects persist even after controlling for potential earnings management to achieve these earnings targets. I also examine the impact of managerial attributes and board governance characteristics on the learning process. My analysis suggests that while CEO overconfidence and CFO overconfidence appear to impede learning, Managerial ability, CEO duality and outside CEO(s) as director(s) strengthen the learning effect. My findings shed light on an important aspect of management guidance and may have implications for users of this information such as financial analysts and investors.
Book Synopsis Analyst Information Precision and Small Earnings Surprises by : Sanjay Bissessur
Download or read book Analyst Information Precision and Small Earnings Surprises written by Sanjay Bissessur and published by . This book was released on 2017 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study proposes and tests an alternative to the extant earnings management explanation for zero and small positive earnings surprises (i.e., analyst forecast errors). We argue that analysts' ability to strategically induce slight pessimism in earnings forecasts varies with the precision of their information. Accordingly, we predict that the probability that a firm reports a small positive instead of a small negative earnings surprise is negatively related to earnings forecast uncertainty and present evidence consistent with this prediction. Our findings have important implications for the earnings management interpretation of the asymmetry around zero in the frequency distribution of earnings surprises. We demonstrate how empirically controlling for earnings forecast uncertainty can materially change inferences in studies that employ the incidence of zero and small positive earnings surprises to categorize firms as “suspect” of managing earnings.
Book Synopsis Can Stock Recommendations Predict Earnings Management and Analysts' Earnings Forecast Errors? by : Jeffery S. Abarbanell
Download or read book Can Stock Recommendations Predict Earnings Management and Analysts' Earnings Forecast Errors? written by Jeffery S. Abarbanell and published by . This book was released on 2012 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate whether the direction and magnitude of earnings management by a firm is affected by analysts' current perception of its equity investment potential (i.e., its perceived ability to generate positive abnormal returns). We argue that firms whose investment potential is perceived to be high (low) by analysts have strong (weak) incentives to meet earnings expectations. Accordingly, firms whose investment potential is perceived to be high are expected to manage earnings towards expectations (to ratify analysts beliefs), whereas firms whose investment potential is perceived to be low are expected to manage earnings away from expectations (to create the greatest possible amount of accounting slack for the future). Relying on analysts' Buy, Hold and Sell recommendations as proxies for firms' perceived investment potential and analysts' earnings forecasts to measure earnings expectations, we find evidence that strongly supports these hypotheses. Specifically, we find that after being rated a Sell, firms engage more frequently in extreme income-decreasing earnings management than other firms, indicating strong incentives to take earnings baths to create accounting slack. This earnings management behavior is associated with extreme bad news earnings surprises. In contrast, after being rated a Buy, firms engage in more frequent (but not more extreme) income-increasing earnings management than other firms. This behavior is associated with a high incidence of reported earnings that meet or slightly exceed the target of analysts' earnings forecasts. Our findings provide evidence of widespread earnings management in response to equity market incentives. They also suggest that some portion of apparent quot;optimismquot; in analysts' forecasts previously documented may be attributable to actions taken by managers subsequent to the issuance of forecasts rather than incentives to bias forecasts often ascribed to analysts.
