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Abstract:
This paper provides some evidence of dividend motivated earnings management by Japanese banks under the governmental guideline. The Guideline had limited dividend payment of banks under 40 percent of their current net income until August 1992. A bank potentially violating the Guideline would increasingly manage its earnings in the same fiscal year to stay within the upper bound. The paper examines several banks' earnings models such as Wahlen (1994) and Ahmed and Takeda (1995) and develops a new accruals model of banks. Empirical results significantly support the existence of such earnings management. However, unexplained selection bias may remain.

Bank, capital regulation, earnings management, dividend policy, accruals

Abstract:
We study management forecasts in Japan, where forecasts are effectively mandated but managers have considerable latitude over the numbers they release. We find that managers’ initial earnings forecasts for a fiscal year are systematically upward-biased but that they revise their forecasts downward during the fiscal year so that most earnings surprises are non-negative. Managers’ initial forecast optimism is inversely related to firm performance, and is more pronounced for firms with higher levels of insider ownership, for smaller firms, and for firms with a history of forecast optimism. The fact that managers’ forecasts tend to be consistently optimistic suggests that reputation effects are insufficient to ensure managerial forecast accuracy. We also find that the information content of managers’ forecasts is related to proxies for whether market participants view the forecasts as credible.

Management Forecasts, Disclosure, Litigation, Japan

Abstract:
This paper provides some evidence of dividend-motivated earnings management using pure accruals defined as accruals and deferrals (A&D) by Japanese banks under the governmental guideline. This guideline had until August 1992 explicitly limited dividend payments by banks to 40 percent or less of their current net income. A bank with the potential to violate the guideline would increasingly manage its A&D to stay within the upper limits. Bias caused by measurement error and research method seems to remain in our tests. Though, under the comparative study, our empirical results consistently support the direct relationship between earnings management and dividend payment policies of Japanese banks: the magnitude of income increasing A&D management becomes significantly smaller when dividend-driven motivation disappears.

bank, capital regulation, accruals and deferrals, dividend payment policy

Abstract:
This paper examines whether firm managers engage in the expectation management of their current performances through their own forecasts and consecutive adjustments. Expectation management in order to achieve positive surprises by lowering analyst forecast levels has been documented (Bernhardt and Campello 2002, for example). However, those studies are based on an implicit assumption that managers effectively communicate with analysts to induce analysts' revisions, which is plausible but difficult to directly observe by researchers. We construct a study on the management own forecasts which the Japanese Stock Exchanges ask for the listed companies; thus, we base our results on explicit and quantitative data.

Our major findings are followings: (1) at the onset of fiscal year, the distribution of changes in expected earnings from prior years is skewed positively (better prospects, positive tail asymmetry). (2) But these optimistic forecasts are not necessarily materialized; surprise of earnings (earnings realization minus initial forecasts) is reversely skewed (negative tail asymmetry). (3) This phenomenon is more remarkable among firms with initial forecasts of the highest earnings changes. (4) Further, a closer examination shows that, through interim revisions, the distribution of surprises in earnings from latest forecasts prior to earnings announcement date has a little positive tail asymmetry, regardless of consecutive adjustment made until then. This cycle (optimistic forecasts - negative revisions - positive surprises) suggests the discretionary management of earnings forecasts by managers. Consistent with prior research, we also find that tendency to avoid decreases in earnings from prior year level is pervasive.

Expectation management, management forecasts, tail asymmetry, earnings surprises

Abstract:
It remains debatable whether poison pills create or dilute shareholder wealth. The present study examines the Japanese market, where the adoption of poison pills accelerated during 2006 and 2007. Companies with lower ownership by keiretsu affiliates, employees and management are more likely to adopt poison pills. The adoption of a poison pill is associated with lower post-adoption excess returns, relative to firms that do not employ the defense. However, this is mitigated where there is a positive perception of incumbent management.

Japan, keiretsu, takeover defense, poison pill, ownership structure