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Contemporary Accounting Research Vol. 26 No. 3 (Fall 2009) pp. 797â831 © CAAA doi:10.1506/car.26.3.7 Contemporary Accounting Research earnings management efforts concentrated at the ï¬scal year-end to meet or beat annual targets. Relying on prior anecdotal and empirical evidence of late-year earnings management, we examine ï¬rms that have experienced a reversal in the pattern of their quarterly earnings changes. A ï¬rm performing poorly in interim quarters may attempt to increase earnings of the fourth quarter to achieve a desired level of annual earnings, whereas a ï¬rm performing well in interim quarters may attempt to decrease earnings of the fourth quarter to build âreservesâ for the future.3 Speciï¬cally, we hypothesize that a ï¬rm is more likely than others to have managed year-end earnings upward, if it reports âbadâ news in interim quarters and âgoodâ news in the fourth quarter. On the other hand, a ï¬rm is more likely than others to have managed year-end earnings downward, if it reports good news in interim quarters and bad news in the fourth. The overarching objective of our study is to examine whether the pattern of quarterly earnings can potentially serve as an indicator of earnings management. First, we determine how prevalent the
Contemporary Accounting Research – Wiley
Published: Sep 1, 2009
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