Does the market price the nature and extent of earnings management for firms that beat their earnings benchmark?
Does the market price the nature and extent of earnings
|ERA Journal ID||19154|
|Authors||Lento, Camillo (Author), Cotter, Julie (Author) and Tutticci, Irene (Author)|
|Journal Title||Australian Journal of Management|
|Journal Citation||41 (4), pp. 633-655|
|Number of Pages||23|
|Place of Publication||Australia|
|Digital Object Identifier (DOI)||https://doi.org/10.1177/0312896216641600|
|Web Address (URL)||http://journals.sagepub.com/doi/full/10.1177/0312896216641600|
This study investigates whether the abnormal returns at the quarterly earnings announcement date varies according to the market’s expectations of the nature (informative vs opportunistic) and extent of discretionary accruals for firms that meet or beat expectations (MBE). In doing so, this study introduces an innovative model that measures the market’s expectation of the informativeness of earnings at the earnings announcement date and assesses the impact on the abnormal return for the interaction between the nature and expected extent of earnings management. A large sample of Standard & Poor’s (S&P) 500 firms that meet or exceed their earnings expectation over the period of 1998 to 2007 is analyzed. The results reveal that the expected extent of earnings management has a positive (negative) relation with the abnormal return when earnings management is informative (opportunistic).
|Keywords||earnings management, market pricing of discretionary accruals, meeting or beating expectations|
|ANZSRC Field of Research 2020||350103. Financial accounting|
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|Byline Affiliations||Lakehead University, Canada|
|Faculty of Business|
|University of Queensland|
|Institution of Origin||University of Southern Queensland|
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