Contemporary Accounting Research Vol. 25 No. 4 (Winter 2008) pp. 1067â98 Â© CAAA doi:10.1506/car.25.4.5 Contemporary Accounting Research We ï¬nd that the stock market premium assigned to meeting analyst estimates of quarterly earnings or beating by less than one cent per share (âsmall beatersâ) has disappeared in the post-scandals period while the premium assigned to beating expectations by more than a cent per share (âbig beatersâ) has diminished. These results suggest that the market has become more skeptical of ï¬rms that meet or beat expectations after the accounting scandals. We also examine the extent to which the scandals and subsequent regulatory changes have affected managersâ actions to avoid missing analystsâ expectations. We ï¬nd that the proportion of ï¬rms that beat expectations by one cent or less has decreased post-scandals, after controlling for macroeconomic variables and the temporal trend in meeting or beating forecasts. Moreover, the mix of mechanisms employed to meet or beat earnings benchmarks has changed post-scandals. While managersâ propensity to rely on income-increasing discretionary accruals to meet analyst forecasts has decreased, downward expectations management has increased. This result is consistent with less reliance on earnings management, perhaps due to the increased scrutiny on such behavior, and more
Contemporary Accounting Research – Wiley
Published: Dec 1, 2008
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