The Rewards to Meeting or Beating Earnings Expectations
Posted: 6 Dec 2002
This paper finds that firms that meet or beat current analysts' earnings expectations (MBE) enjoy a higher return over the quarter than firms with similar quarterly earnings forecast errors that fail to meet these expectations. Further, such a premium to MBE, although somewhat smaller, exists in cases where MBE is likely to have been achieved through earnings or expectations management. The findings also indicate that the premium to MBE is a leading indicator of future performance. This premium and its predictive ability are only marginally affected by whether the MBE is genuine or the result of earnings or expectations management.
Keywords: earnings expectations, analysts' forecasts, expectation management, earnings management, losses
JEL Classification: G14, G24, G29, M41, M43
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