Abstract

http://ssrn.com/abstract=1975122
 


 



Exploring Managers’ Accrual-Related Forecast Optimism


Sami Keskek


University of Arkansas - Sam M. Walton College of Business

Linda A. Myers


University of Arkansas

Thomas C. Omer


University of Nebraska at Lincoln - School of Accountancy

Nathan Y. Sharp


Texas A&M University - Department of Accounting

May 2013


Abstract:     
In this study, we examine the effect of accrual-based earnings management on the relation between managers’ earnings forecast optimism and accruals (which we label “managers’ accrual-related forecast optimism”). We build on extensive research which finds that managers inflate accruals to meet or beat earnings benchmarks and suggest that managers’ accrual-related forecast optimism can arise because managers issue optimistic forecasts in an attempt to justify inflated accruals. Consistent with expectations, we find that managers’ earnings forecast optimism is positively associated with discretionary accruals (which proxy for accrual-based earnings management) but not with nondiscretionary accruals. Furthermore, managers’ accrual-related forecast optimism is stronger when earnings management constraints are high. Finally, we find a substantial decline in managers’ accrual-related forecast optimism following the enactment of the Sarbanes-Oxley Act of 2002 which restricted managers’ use of accrual-based earnings management. Overall, our results suggest that managers’ accrual-related forecast optimism is at least in part due to intentional decisions made by managers and is not simply a product of forecasting difficulty related to accruals.

Number of Pages in PDF File: 44

Keywords: management earnings forecasts, managers’ accrual-related forecast optimism, earnings management, disclosure quality

JEL Classification: M41, M43, M48, G14, G18

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Date posted: December 22, 2011 ; Last revised: May 21, 2013

Suggested Citation

Keskek, Sami and Myers, Linda A. and Omer, Thomas C. and Sharp, Nathan Y., Exploring Managers’ Accrual-Related Forecast Optimism (May 2013). Available at SSRN: http://ssrn.com/abstract=1975122 or http://dx.doi.org/10.2139/ssrn.1975122

Contact Information

Sami Keskek
University of Arkansas - Sam M. Walton College of Business ( email )
Fayetteville, AR 72701
United States
Linda A. Myers
University of Arkansas ( email )
Fayetteville, AR 72701
United States
Thomas C. Omer
University of Nebraska at Lincoln - School of Accountancy ( email )
307 College of Business Administration
Lincoln, NE 68588-0488
United States
Nathan Y. Sharp (Contact Author)
Texas A&M University (TAMU) - Department of Accounting ( email )
430 Wehner
College Station, TX 77843-4353
United States
979-845-0338 (Phone)

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