Consensus Information and Non-Professional Investors’ Reaction to the Revelation of Estimate Inaccuracies

Posted: 10 Sep 2007 Last revised: 3 Jan 2013

See all articles by Lisa Koonce

Lisa Koonce

University of Texas

Michael G. Williamson

University of Illinois at Urbana-Champaign - Department of Accountancy

Jennifer Winchel

University of Virginia - McIntire School of Commerce

Date Written: May 6, 2009

Abstract

To curb opportunism in financial reporting, scholars and regulators have proposed that firms be required to report reconciliations of prior year estimates. We provide experimental evidence that such disclosures are not sufficient for non-professional investors to identify those firms that are opportunistic in their estimates. We also offer evidence suggesting that the value of these disclosures can be enhanced when non-professional investors seek out information about the estimate accuracy of other firms in the industry (i.e., consensus information). Our study provides insights about these disclosures and the mechanisms that enhance their effectiveness. Our findings have broad implications for standard setters and future research designed to assist in identifying opportunistic management behavior.

Keywords: estimates, disclosures, opportunistic financial reporting

JEL Classification: M41, M43, M45, G38

Suggested Citation

Koonce, Lisa L. and Williamson, Michael G. and Winchel, Jennifer, Consensus Information and Non-Professional Investors’ Reaction to the Revelation of Estimate Inaccuracies (May 6, 2009). Accounting Review, Vol. 85, No. 3, 2010, Available at SSRN: https://ssrn.com/abstract=1012404

Lisa L. Koonce (Contact Author)

University of Texas ( email )

Dept. of Accounting
McCombs School of Business
Austin, TX 78712
United States
512-471-5576 (Phone)
512-471-3904 (Fax)

Michael G. Williamson

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Jennifer Winchel

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

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