To What Extent Does the Financial Reporting Process Curb Earnings Surprise Games?

Brown, Lawrence D.; Pinello, Arianna S.

doi:10.2139/ssrn.700672

Cited by 68 publications

(122 citation statements)

References 32 publications

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“…We illustrate the implications of controlling for forecast uncertainty for relations between earnings surprises and three variables identified as constraints on managers' ability to manage earnings: balance sheet ''bloat'' (Barton and Simko 2002), the fourth fiscal quarter (Brown and Pinello 2007), and analyst cash flow forecasts (McInnis and Collins 2011).…”

Section: Implications For Researchmentioning

confidence: 99%

“…The design of Singer and You (2011) comes closest to our classification, except theirs focuses on price-scaled earnings surprises. McVay et al (2006), Brown and Pinello (2007), and Shon and Veliotis (2013) do focus on unscaled surprises, but they include 0 cent surprises as small ''beats.'' Our choice to focus on 1 and 2 cent surprises, though arbitrary, is driven by our motivation to obtain a reasonable small interval around zero while also maintaining enough observations for the analyses.…”

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confidence: 99%

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Analyst information precision and small earnings surprises

Bissessur

Veenman

2016

Rev Account Stud

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This study proposes and tests an alternative to the extant earnings management explanation for zero and small positive earnings surprises (i.e., analyst forecast errors). We argue that analysts' ability to strategically induce slight pessimism in earnings forecasts varies with the precision of their information. Accordingly, we predict that the probability that a firm reports a small positive instead of a small negative earnings surprise is negatively related to earnings forecast uncertainty, and we present evidence consistent with this prediction. Our findings have important implications for the earnings management interpretation of the asymmetry around zero in the frequency distribution of earnings surprises. We demonstrate how empirically controlling for earnings forecast uncertainty can materially change inferences in studies that employ the incidence of zero and small positive earnings surprises to categorize firms as suspected of managing earnings.

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Section: Implications For Researchmentioning

confidence: 99%

mentioning

confidence: 99%

Analyst information precision and small earnings surprises

Bissessur

Veenman

2016

Rev Account Stud

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“…If the abnormal stock returns of firms with predicted persistent losses represent a delayed response to predictable changes in future earnings, then they should be concentrated around information events that reveal those changes, such as future earnings announcements. (Brown and Pinello, 2007). In addition, the majority of write-offs take place at the end of the fiscal year rather than during interim quarters (Elliott and Shaw, 1988).…”

Section: H1(b): Future Abnormal Returns Are Negative For Firms With Pmentioning

confidence: 99%

How well do investors understand loss persistence?

Li¹

2011

Rev Account Stud

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“…Brown and Pinello (2007) examine the usefulness of the financial reporting technique at restraining earnings surprise games. They argue that the yearly reporting procedure is subject to an independent audit while the interim reporting process is not.…”

Section: "Ias 34 'Interim Financial Reporting' Prescribes the Minimummentioning

confidence: 99%

Frequency of Financial Reports

Darjezi¹,

Khansalar²

2013

IJBM

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Interim reports are summary statements that are usually prepared in semi-annual format in the UK. Until the EU's Transparency Directive was put into practice in the UK in 2007, there was no legal necessity for companies to provide interim financial reports. (Note 1) Instead such preparation was only a regulatory requirement of the London Stock Exchange. The responsibility on companies listed on the London Stock Exchange to provide these financial reports was first prepared as an suggestion in 1964, to meet the requirements for updates by financial analysts (May, 1971). In 1973, this advice to provide the market with interim information became a requirement for the admission of stocks and securities to be listed on the stock Exchange (Lunt, 1982). This study investigates the preparation of interim reports, and accounting standards for interim reporting. Also, this study discusses the main purpose of interim reports, the methods of preparation and the benefits of reporting frequency.

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To What Extent Does the Financial Reporting Process Curb Earnings Surprise Games?

Cited by 68 publications

References 32 publications

Analyst information precision and small earnings surprises

Analyst information precision and small earnings surprises

How well do investors understand loss persistence?

Frequency of Financial Reports

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