Are Seemingly Self-Serving Attributions in Earnings Press Releases Plausible? Empirical Evidence

51 Pages Posted: 20 Nov 2013

See all articles by Michael D. Kimbrough

Michael D. Kimbrough

University of Maryland - Robert H. Smith School of Business

Isabel Yanyan Wang

Michigan State University

Date Written: July 24, 2013

Abstract

Seemingly self-serving attributions either attribute favorable performance to internal causes (enhancing attributions) or poor performance to external causes (defensive attributions). Managers presumably provide such attributions in earnings press releases to heighten (dampen) investors' perceptions of the persistence of good (bad) earnings news, thereby increasing (decreasing) the market reward (penalty) for good (bad) earnings news. Building on attribution theory and prior research on earnings commonality, this study investigates cross-sectional differences in investors’ responses to quarterly earnings press releases that contain seemingly self-serving attributions. Using a random sample of press releases from 1999 to 2005, we find that firms that provide defensive attributions to explain earnings disappointments experience less severe market penalties when: 1) more of the their industry peers also release bad news, and 2) their earnings shares higher commonality with industry- and market-level earnings. On the other hand, firms that provide enhancing attributions to explain good earnings news reap greater market rewards when: 1) more of their industry peers release bad news, and 2) their earnings shares lower commonality with industry- and market-level earnings. Collectively, our results demonstrate that investors neither ignore seemingly self-serving attributions nor accept them at face value, but rely on industry- and firm-specific information to assess their plausibility.

Keywords: narrative disclosure; attribution; plausibility

JEL Classification: M4, D8

Suggested Citation

Kimbrough, Michael D. and Wang, Isabel, Are Seemingly Self-Serving Attributions in Earnings Press Releases Plausible? Empirical Evidence (July 24, 2013). Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2349326

Michael D. Kimbrough (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

Robert H. Smith School of Business
College Park, MD 20742-9157
United States
301-405-8222 (Phone)
301-314-9414 (Fax)

Isabel Wang

Michigan State University ( email )

N233 Business Complex
Broad School of Business
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.msu.edu/~wangyany/

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