Revenue Benchmark Beating and the Sector-Level Investor Pricing of Revenue and Earnings

Posted: 16 Nov 2016  

Rong Zhao

University of Calgary

Date Written: October 2016

Abstract

Prior research examines financial reporting of revenue in the context of how the incentives to achieve the earnings goal affect revenue reporting. In contrast, this study investigates how firms respond to sector-level incentives related to both revenue and earnings when evaluating the importance of revenue benchmarks. Results show that the importance of revenue benchmarks varies over time and across industry sectors. Regression analyses show that the sector-level incentives related to revenue and earnings affect revenue benchmark beating in opposite ways. Firms are more (less) likely to meet or just beat revenue benchmarks when the sector-level investor pricing of revenue (earnings) is high. Cross-sectional tests reveal that the association between revenue benchmark beating and the sector-level investor pricing of revenue (earnings) is stronger (weaker) among relatively young firms.

Keywords: Revenue Benchmark Beating, Sector-Level Incentives, Life Cycle

JEL Classification: G14

Suggested Citation

Zhao, Rong, Revenue Benchmark Beating and the Sector-Level Investor Pricing of Revenue and Earnings (October 2016). Accounting Horizons, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2869297

Rong Zhao (Contact Author)

University of Calgary ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403-220-2568 (Phone)
403-210-2217 (Fax)

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