Meet/Beat Market Expectation, Accounting Conservatism and Corporate Governance

53 Pages Posted: 16 Dec 2014

See all articles by Bikki Jaggi

Bikki Jaggi

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Anthony C. Ng

Monash University; Monash University

Hua Christine Xin

University of Louisville

Date Written: December 11, 2014

Abstract

Accounting conservatism has been recognized as a reporting strategy that benefits shareholders and financial statement users. We hypothesize that managers in general are likely to sacrifice the benefit associated with accounting conservatism when adopting meeting/beating market expectations (hereafter MBME). Our findings show a negative association between MBME, proxied by analysts’ consensus forecasts, and accounting conservatism, defined in terms of conditional conservatism (Basu, 1997; Ball and Shivakumar, 2005, 2006) and we show that such relationship is not a mechanical connection between reporting strategy and managerial incentives to report higher earnings. Further analysis show that the negative relationship still exists after controlling for expectation as well as accrual-based and real earnings management. However, we document that G-index (Gompers et al., 2003), reflecting corporate governance in terms of anti-takeover provisions, has a significant impact on the negative association between accounting conservatism and MBME. Such finding shows that firms with less anti-takeover provisions, proxied by G-index, are less likely to sacrifice the benefit associated with conservative accounting for MBME.

Keywords: Meet/Beat Analysts’ Forecasts, Accounting Conservatism, Corporate Governance

JEL Classification: M40, M41, G34

Suggested Citation

Jaggi, Bikki and Ng, Anthony C. and Xin, Hua Christine, Meet/Beat Market Expectation, Accounting Conservatism and Corporate Governance (December 11, 2014). 2015 Canadian Academic Accounting Association (CAAA) Annual Conference. Available at SSRN: https://ssrn.com/abstract=2537205 or http://dx.doi.org/10.2139/ssrn.2537205

Bikki Jaggi

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

100B Rockafeller Road
Piscataway, NJ 08854
United States

Anthony C. Ng

Monash University ( email )

Caulfield Campus
900 Dandenong Road
Caulfield East, VIC 3145
Australia

Monash University ( email )

Caulfield Campus
900 Dandenong Road
Caulfield East, VIC 3145
Australia

Hua Christine Xin (Contact Author)

University of Louisville ( email )

School of Accountancy #137
College of Business
Louisville, KY Kentucky 40292
United States
(502)852-4816 (Phone)

HOME PAGE: http://business.louisville.edu/faculty-and-staff-directory/acct/

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