Does the market price the nature and extent of earnings management for firms that beat their earnings benchmark?

Lento, Camillo and Cotter, Julie and Tutticci, Irene (2016) Does the market price the nature and extent of earnings management for firms that beat their earnings benchmark? Australian Journal of Management, 41 (4). pp. 633-655. ISSN 0312-8962

Abstract

This study investigates whether the abnormal returns at the quarterly earnings announcement date varies according to the market’s expectations of the nature (informative vs opportunistic) and extent of discretionary accruals for firms that meet or beat expectations (MBE). In doing so, this study introduces an innovative model that measures the market’s expectation of the informativeness of earnings at the earnings announcement date and assesses the impact on the abnormal return for the interaction between the nature and expected extent of earnings management. A large sample of Standard & Poor’s (S&P) 500 firms that meet or exceed their earnings expectation over the period of 1998 to 2007 is analyzed. The results reveal that the expected extent of earnings management has a positive (negative) relation with the abnormal return when earnings management is informative (opportunistic).


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Published version cannot be displayed due to copyright restrictions.
Faculty / Department / School: No Faculty
Date Deposited: 23 Feb 2017 06:07
Last Modified: 23 Feb 2017 23:23
Uncontrolled Keywords: earnings management, market pricing of discretionary accruals, meeting or beating expectations
Fields of Research : 15 Commerce, Management, Tourism and Services > 1501 Accounting, Auditing and Accountability > 150103 Financial Accounting
Socio-Economic Objective: B Economic Development > 90 Commercial Services and Tourism > 9001 Financial Services > 900102 Investment Services (excl. Superannuation)
Identification Number or DOI: 10.1177/0312896216641600
URI: http://eprints.usq.edu.au/id/eprint/30488

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