The Rewards to Meeting or Beating Earnings Expectations

37 Pages Posted: 13 Dec 2000

See all articles by Eli Bartov

Eli Bartov

NYU Stern School of Business

Dan Givoly

Pennsylvania State University, Smeal College of Business

Carla Hayn

University of California at Los Angeles - Anderson School of Management

Multiple version iconThere are 3 versions of this paper

Date Written: October 2000

Abstract

The paper studies the manner by which earnings expectations are met, measures the rewards to meeting or beating earnings expectations (MBE) formed just prior to the release of quarterly earnings, and tests alternative explanations for this reward. The evidence supports the claims that the MBE phenomenon has become more widespread in recent years and that the pattern by which MBE is obtained is consistent with both earnings management and expectation management. More importantly, the evidence shows that after controlling for the overall earnings performance in the quarter, firms that manage to meet or beat their earnings expectations enjoy an average quarterly return that is higher by almost 3% than their peers that fail to do so. While investors appear to discount MBE cases that are likely to result from expectation or earnings management, the premium in these cases is still significant. Finally, the results are consistent with an economic explanation for the premium placed on earnings surprises, namely that MBE are informative of the firm's future performance.

Keywords: Earnings expectations, analysts' forecasts, expectation management, earnings management, losses

JEL Classification: G14, G24, G29, M41, M43

Suggested Citation

Bartov, Eli and Givoly, Dan and Hayn, Carla, The Rewards to Meeting or Beating Earnings Expectations (October 2000). Available at SSRN: https://ssrn.com/abstract=247435 or http://dx.doi.org/10.2139/ssrn.247435

Eli Bartov

NYU Stern School of Business ( email )

44 W. 4th Street, Suite 10-96
New York, NY 10012
United States
212.998.0016 (Phone)

Dan Givoly (Contact Author)

Pennsylvania State University, Smeal College of Business ( email )

305 Business Building
University Park, PA 16802
United States
814-865-0587 (Phone)
814-863-8393 (Fax)

Carla Hayn

University of California at Los Angeles - Anderson School of Management ( email )

D410 Anderson Complex
Los Angeles, CA 90095-1481
United States
310-206-9225 (Phone)

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