A discussion of “Do managers use earnings guidance to influence street earnings exclusions?”

A discussion of “Do managers use earnings guidance to influence street earnings exclusions?” It is well known that both managers and analysts frequently define earnings by excluding various amounts from GAAP earnings. Christensen et al. (Rev Account Stud, 2011) make a prediction of causality whereby managers actively influence how analysts define earnings. They argue that the mechanism through which managers accomplish this is guidance of analysts’ earnings forecasts within a fiscal period. Using a large sample of firms actively followed by analysts, the authors examine whether the existence of earnings guidance is associated with higher levels of total exclusions in analysts’ definition of earnings. The study provides suggestive evidence that managers actively influence analysts’ definition of earnings that they forecast. However, the indirect nature of the research design calls for additional work to specifically link directed guidance of GAAP earnings exclusions to amounts actually excluded by analysts. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

A discussion of “Do managers use earnings guidance to influence street earnings exclusions?”

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Publisher
Springer Journals
Copyright
Copyright © 2011 by Springer Science+Business Media, LLC
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-011-9144-9
Publisher site
See Article on Publisher Site

Abstract

It is well known that both managers and analysts frequently define earnings by excluding various amounts from GAAP earnings. Christensen et al. (Rev Account Stud, 2011) make a prediction of causality whereby managers actively influence how analysts define earnings. They argue that the mechanism through which managers accomplish this is guidance of analysts’ earnings forecasts within a fiscal period. Using a large sample of firms actively followed by analysts, the authors examine whether the existence of earnings guidance is associated with higher levels of total exclusions in analysts’ definition of earnings. The study provides suggestive evidence that managers actively influence analysts’ definition of earnings that they forecast. However, the indirect nature of the research design calls for additional work to specifically link directed guidance of GAAP earnings exclusions to amounts actually excluded by analysts.

Journal

Review of Accounting StudiesSpringer Journals

Published: May 11, 2011

References

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