Making Sense of Cents: An Examination of Firms that Marginally Miss or Beat Analyst Forecasts

Posted: 22 Jul 2009  

Sanjeev Bhojraj

Cornell University - Samuel Curtis Johnson Graduate School of Management

Paul Hribar

University of Iowa - Henry B. Tippie College of Business

Marc Picconi

College of William and Mary

John M. McInnis

University of Texas at Austin - Department of Accounting

Date Written: July 22, 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

Suggested Citation

Bhojraj, Sanjeev and Hribar, Paul and Picconi, Marc and McInnis, John M., Making Sense of Cents: An Examination of Firms that Marginally Miss or Beat Analyst Forecasts (July 22, 2009). Journal of Finance, No. 64, pp. 2359-2386, October 2009. Available at SSRN: https://ssrn.com/abstract=1437689

Sanjeev Bhojraj

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Department of Accounting
Ithaca, NY 14853
United States
607-255-4069 (Phone)
607-254-4590 (Fax)

Paul Hribar (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

Dept. of Accounting
Iowa City, IA 52242-1000
United States
319-335-1008 (Phone)

Marc Picconi

College of William and Mary ( email )

P.O. Box 8795
Williamsburg, VA 23185
United States

John M. McInnis

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States
512-232-6791 (Phone)

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