Abstract

http://ssrn.com/abstract=1070122
 
 

References (47)



 
 

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On the Use of Accounting vs. Real Earnings Management to Meet Earnings Expectations - A Market Analysis


Jeff Zeyun Chen


University of Colorado at Boulder

Lynn L. Rees


Texas A&M University - Department of Accounting

Shiva Sivaramakrishnan


Texas A&M University - Department of Accounting

November 2010


Abstract:     
In this study we examine the extent to which accounting earnings management (AEM) and real earnings management (REM) differ in their impact on future operating performance and how the market rewards firms for meeting or beating analysts’ forecasts. We find that firms using REM exclusively to meet analysts' expectations outperform firms using AEM in the longer term and perform no worse than firms that meet without earnings management. We also find that the equity premium to meeting or beating analysts’ forecasts is significantly higher for firms that use REM to achieve this earnings target than for firms that use AEM. However, we find no difference in the premium for firms that use REM relative to firms that do not engage in earnings management. These findings suggest that REM possesses positive signaling effects about future firm performance.

Number of Pages in PDF File: 45

Keywords: earnings forecasts, financial analysts, earnings management, meet or beat expectations

JEL Classification: G14, M41

working papers series


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Date posted: December 12, 2007 ; Last revised: December 19, 2010

Suggested Citation

Chen, Jeff Zeyun and Rees, Lynn L. and Sivaramakrishnan, Shiva, On the Use of Accounting vs. Real Earnings Management to Meet Earnings Expectations - A Market Analysis (November 2010). Available at SSRN: http://ssrn.com/abstract=1070122 or http://dx.doi.org/10.2139/ssrn.1070122

Contact Information

Jeff Zeyun Chen
University of Colorado at Boulder ( email )
419 UCB
Boulder, CO 80309-0419
United States
Lynn L. Rees
Texas A&M University (TAMU) - Department of Accounting ( email )
Mays Business School
College Station, TX 77843-4353
United States
979-845-6078 (Phone)
979-845-0028 (Fax)

Shiva Sivaramakrishnan (Contact Author)
Texas A&M University (TAMU) - Department of Accounting ( email )
430 Wehner
College Station, TX 77843-4353
United States

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