The rewards to meeting or beating earnings expectations

Abstract

This paper finds that firms that meet or beat current analysts' earnings expectations (MBE) enjoy a higher return over the quarter than firms with similar quarterly earnings forecast errors that fail to meet these expectations. Further, such a premium to MBE, although somewhat smaller, exists in the cases where MBE is likely to have been achieved through earnings or expectations management. The findings also indicate that the premium to MBE is a leading indicator of future performance. This premium and its predictive ability are only marginally affected by whether the MBE is genuine or the result of earnings or expectations management. r 2002 Elsevier Science B.V. All rights reserved.

Institutional Investment Horizons and CEO Compensation

“…attention to efforts to meet forecasted earnings benchmarks and that there are substantial penalties for firms that miss analysts' consensus earnings forecasts (Bartov, Givoly, and Hayn 2002;Graham, Harvey, and Rajgopal 2005;Kasznik and McNichols 2002;Skinner and Sloan 2002). In line with these findings, Matsunaga and Park (2001) document a significant incremental adverse effect on CEO annual cash bonuses when a firm's quarterly earnings fall short of either the consensus analyst forecast or the earnings for the same quarter of the prior year, after a general pay-for-performance relationship is controlled.…”

Trend and Tradeoff Between Accrual Earnings Management and Real Earnings Management in Indonesia

“…al., 2002;Lopez and Rees, 2001). This literature also provides evidence that managerial propensity to avoid negative earnings surprises has increased significantly over time (Brown, 2001;Bartov et. al, 2002;Matsumoto, 2002), although no significant increase has been observed in the tendency to avoid losses or earnings decreases (Burgstahler and Eames, 2003).…”

“…Research documenting the trend in earnings management over time indicates that the tendency to manage earnings has increased over time (Brown, 2001;Bartov et. al., 2002;Lopez and Rees, 2001).…”

New Perspective of Earnings Management: The Effect of Outsiders' Requirements on Managerial Choice of Earnings Management Mechanisms

“…Research, also, finds that stock market represents another external EM motive due to its super premium, or overpricing the firms' stocks, which succeed in managing the reported earnings upward when they intend either to sell their stock to the public at a high price during certain corporate events, i.e. initial public offers or seasoned equity offers; or to beat financial analysts' financial expectations ; Darrough & Rangan (2005); DuCharme et al (2004); Kamel (2006) ;Kasab, (2006); Marquardt & Wiedmand (2004); Rangan (1998);Teoh et al (1998a); Teoh et al (1998b); Kamel (2012), Aharony et al (2010); Algharaballi (2013); Aerts and Cheng (2011);Maarof (2010) (Abarbanell & Lehavy, 2003;Bartov, et al, 2002;Bhojra, et al, 2003;Cheng & Warfield, 2005;Gleason & Mills, 2008;Hribar, et al, 2006;Kasznik & McNichols, 2002). Bruns & Merchant (1990) and Hopwood (1987) argue that corporate executives are allowed to make various kinds of discretionary decisions, whether these are related to real economic activities, the choice of particular accounting policies, or both, which enable them to determine and direct the amount of earnings to be reported.…”