Mechanisms to Meet/Beat Analyst Earnings Expectations in the Pre- and Post-Sarbanes-Oxley Eras
New York University
Daniel A. Cohen
University of Texas at Dallas - Naveen Jindal School of Management
NYU Working Paper No. 2451/27568
This paper asks two questions. First, has the prevalence of expectations management tomeet/beat analyst expectations changed in the aftermath of the 2001-2002 accountingscandals and the passage of the 2002 Sarbanes-Oxley Act (SOX)? Second, has the mixamong the three mechanisms used for meeting earnings targets: accrual earningsmanagement, real earnings management, and earnings expectations management shiftedin the Post-SOX Period? We document that the propensity to meet/beat analystexpectations has declined significantly in the Post-SOX Period. Our primary findingsexplain this pattern. In particular, we find a decline in the use of expectationsmanagement and accrual management, and no change in real earnings management in thePost-SOX Period relative to the preceding seven-year period. Our results are robust tocontrolling for varying macro economic conditions. These findings contribute to theacademic literature, investors, and regulators.
Number of Pages in PDF File: 44working papers series
Date posted: October 8, 2008
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