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The Market Reward for Achieving Analyst Earnings Expectations: Does Managing Expectations or Earnings Matter?

Journal of business finance & accounting, 2011-01, Vol.38 (1-2), p.58-94 [Peer Reviewed Journal]

2010 Blackwell Publishing Ltd ;Copyright Blackwell Publishing Ltd. Jan-Mar 2011 ;ISSN: 0306-686X ;EISSN: 1468-5957 ;DOI: 10.1111/j.1468-5957.2010.02219.x

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Title:
The Market Reward for Achieving Analyst Earnings Expectations: Does Managing Expectations or Earnings Matter?
Author: Athanasakou, Vasiliki ; Strong, Norman C. ; Walker, Martin
Subjects: Accruals ; analyst expectations ; Classification ; classification shifting ; Earnings ; earnings forecast guidance ; Earnings forecasting ; Earnings management ; Expectations ; Financial management ; Financial reporting ; Forecasts ; informative ; market reward ; opportunistic ; Profits ; Securities markets ; Stock prices ; Studies ; United Kingdom ; Working capital
Is Part Of: Journal of business finance & accounting, 2011-01, Vol.38 (1-2), p.58-94
Description: : This study explores the market response to achieving analyst earnings expectations, distinguishing between expectations achieved through earnings forecast guidance and earnings management. We consider three earnings management tools: real earnings management, working capital accruals management, and classification shifting. Analysis indicates that UK firms use earnings forecast guidance and classification shifting to achieve analyst expectations. The market does not reward firms that achieve expectations through forecast guidance, and achievers that classification shift receive a lower market reward than genuine achievers. The market response aligns with information on future profitability and rational pricing tests show that there is no overall mispricing of achievers. Evidence of stock price incentives to engage in earnings forecast guidance is found only within more opportunistic downward forecast revisions mainly driven by high market growth expectations.
Publisher: Oxford, UK: Blackwell Publishing Ltd
Language: English
Identifier: ISSN: 0306-686X
EISSN: 1468-5957
DOI: 10.1111/j.1468-5957.2010.02219.x
Source: Alma/SFX Local Collection
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The Market Reward for Achieving Analyst Earnings Expectations: Does Managing Expectations or Earnings Matter?

2010 Blackwell Publishing Ltd ;Copyright Blackwell Publishing Ltd. Jan-Mar 2011 ;ISSN: 0306-686X ;EISSN: 1468-5957 ;DOI: 10.1111/j.1468-5957.2010.02219.x

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