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http://ssrn.com/abstract=1879254
 
 

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Short-Term Earnings Guidance and Earnings Management


Andrew C. Call


Arizona State University (ASU) - School of Accountancy

Shuping Chen


University of Texas at Austin - Red McCombs School of Business

Bin Miao


National University of Singapore

Yen H. Tong


Nanyang Technological University (NTU) - Nanyang Business School

July 5, 2011


Abstract:     
We study the relation between short-term earnings guidance and earnings management. We find that firms issuing short-term earnings forecasts exhibit significantly lower absolute abnormal accruals, our proxy for earnings management, than do firms that do not issue earnings forecasts. Regular guiders also exhibit less earnings management than do less regular guiders. These findings are contrary to conventional wisdom but consistent with the implications of Dutta and Gigler (2002) and the expectations alignment role of earnings guidance (Ajinkya and Gift 1984). Our results continue to hold after we control for self-selection and potential reverse causality concerns, and in a setting where managers are documented to have strong incentives to manage earnings. Additional analysis reveals that guiding firms exhibit less income-increasing accrual management whether firms guide expectations upwards or downwards, and no evidence that guiding firms inflate earnings through real activities management. We also provide evidence to demonstrate that meeting-or-beating benchmarks is not an appropriate proxy for earnings management in our research setting.

Number of Pages in PDF File: 52

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Date posted: July 6, 2011  

Suggested Citation

Call, Andrew C. and Chen, Shuping and Miao, Bin and Tong, Yen H., Short-Term Earnings Guidance and Earnings Management (July 5, 2011). Available at SSRN: http://ssrn.com/abstract=1879254 or http://dx.doi.org/10.2139/ssrn.1879254

Contact Information

Andrew C. Call
Arizona State University (ASU) - School of Accountancy ( email )
Tempe, AZ 85287
United States
Shuping Chen (Contact Author)
University of Texas at Austin - Red McCombs School of Business ( email )
Austin, TX 78712
United States
521.471.5328 (Phone)
Bin Miao
National University of Singapore ( email )
15 Kent Ridge Drive
Singapore, 119245
Singapore
Yen H. Tong
Nanyang Technological University (NTU) - Nanyang Business School ( email )
Singapore 639798
Singapore
65-6790-5743 (Phone)
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