Earnings Guidance and Earnings Manipulation

48 Pages Posted: 11 Oct 2011 Last revised: 18 Nov 2015

See all articles by Mei Feng

Mei Feng

University of Pittsburgh - Katz Graduate School of Business

Weili Ge

University of Washington - Michael G. Foster School of Business

Chan Li

University of Kansas

Nandu J. Nagarajan

University of Texas at Arlington

Date Written: November 17, 2015

Abstract

This paper investigates the costs, benefits and frequency of management earnings guidance issued by firms manipulating earnings. We find that, when manipulations are detected, misstating firms issuing guidance and their managers incur additional legal costs, as reflected in the higher settlement amounts paid by these firms and a higher likelihood that their CEOs are banned from serving as officers, directors, or accountants of public companies in the future. Next, we provide evidence suggesting that earnings guidance benefits earnings manipulators by delaying the detection of misstatements. Finally, we find that firms manipulating earnings are significantly more likely to issue earnings guidance than matched control firms. Taken together, the above evidence suggests that firms manipulating earnings act as if they perceive the benefits of issuing earnings guidance to be greater than the costs, increasing their earnings guidance issuance during the misstatement period.

Suggested Citation

Feng, Mei and Ge, Weili and Li, Chan and Nagarajan, Nandu J., Earnings Guidance and Earnings Manipulation (November 17, 2015). Available at SSRN: https://ssrn.com/abstract=1942076 or http://dx.doi.org/10.2139/ssrn.1942076

Mei Feng

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Weili Ge

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Chan Li (Contact Author)

University of Kansas ( email )

Capitol Federal Hall
Lawrence, KS 66045
United States
7857661277 (Phone)
66045 (Fax)

Nandu J. Nagarajan

University of Texas at Arlington ( email )

415 S West St Apt no 205
Arlington, TX 76019
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
365
Abstract Views
2,127
rank
80,886
PlumX Metrics