Abstract

http://ssrn.com/abstract=741244
 
 

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Earnings Momentum and Earnings Management


James N. Myers


University of Arkansas

Linda A. Myers


University of Arkansas

Douglas J. Skinner


The University of Chicago - Booth School of Business

August 2006


Abstract:     
This paper provides evidence on firms that report long "strings" of consecutive increases in earnings per share (EPS). First, we find 746 firms that report earnings strings of at least 20 quarters since 1962, and show that this frequency is much larger than would be expected by chance. We interpret this as prima facie evidence of earnings management. Next, we document that these firms enjoy abnormal returns that average over 20 percent per year during the first five years of these strings, and these returns are larger than those of firms reporting at least five years of consecutive increases in annual (but not quarterly) EPS. We argue that these market premia, and the rapidity with which they disappear once the strings end, provide managers with incentives to maintain and extend the strings. Finally, we present several tests that document how managers of these firms use various earnings management tools to help their firms sustain and extend these strings.

Number of Pages in PDF File: 49

Keywords: earnings momentum, earnings management, accruals, management incentives

JEL Classification: M41, G30

working papers series





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Date posted: May 1, 1999  

Suggested Citation

Myers, James N. and Myers, Linda A. and Skinner, Douglas J., Earnings Momentum and Earnings Management (August 2006). Available at SSRN: http://ssrn.com/abstract=741244 or http://dx.doi.org/10.2139/ssrn.741244

Contact Information

James N. Myers
University of Arkansas ( email )
Business Bldg. 454
Fayetteville, AR 72701
United States
Linda A. Myers
University of Arkansas ( email )
Fayetteville, AR 72701
United States
Douglas J. Skinner (Contact Author)
The University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7137 (Phone)

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