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Making Sense of Cents: An Examination of Firms that Marginally Miss or Beat Analyst ForecastsSanjeev BhojrajCornell University - Samuel Curtis Johnson Graduate School of Management Paul HribarUniversity of Iowa - Henry B. Tippie College of Business Marc PicconiIndiana University Bloomington - Kelley School of Business John M. McInnisUniversity of Texas at Austin - Department of Accounting July 22, 2009 Journal of Finance, No. 64, pp. 2359-2386, October 2009 Abstract: This paper examines the performance consequences of cutting discretionary expenditures and managing accruals to exceed analyst forecasts. We show that firms that just beat analyst forecasts with low quality earnings exhibit a short-term stock price benefit relative to firms that miss forecasts with high quality earnings. This trend, however, reverses over a three-year horizon. Additionally, firms reducing discretionary expenditures to beat forecasts have significantly greater equity issuances and insider selling in the following year, consistent with managers understanding the myopic nature of their actions. Our results confirm survey evidence suggesting managers engage in myopic behavior to beat benchmarks.
JEL Classification: M41, M43, G29, G24 Accepted Paper SeriesDate posted: July 22, 2009Suggested CitationContact Information
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