Download this Paper Open PDF in Browser

Value Destruction and Financial Reporting Decisions

23 Pages Posted: 20 Dec 2005  

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Shivaram Rajgopal

Columbia Business School

Multiple version iconThere are 2 versions of this paper

Date Written: September 6, 2006

Abstract

We recently conducted a comprehensive survey that analyzes how senior financial executives make decisions related to performance measurement and voluntary disclosure. In particular, we ask CFOs what earnings benchmarks they care about and which factors motivate executives to exercise discretion, and even sacrifice economic value, to deliver earnings. These issues are crucially linked to stock market performance. Much of the media attention is focused on a small number of high profile firms that have engaged in earnings fraud. Our results show that the destruction of shareholder value through legal means is pervasive, if not a routine way of doing business. Indeed, we assert that the amount of value destroyed by firms striving to hit earnings targets exceeds the value lost in these high profile fraud cases.

Keywords: Earnings management, earnings smoothing, consensus earnings, meeting benchmarks, value destruction, agency problems, real earnings management, unexpected earnings, earnings surprise, net present value

JEL Classification: G14, G30, G32, M41, M43, M49, G38

Suggested Citation

Graham, John R. and Harvey, Campbell R. and Rajgopal, Shivaram, Value Destruction and Financial Reporting Decisions (September 6, 2006). Available at SSRN: https://ssrn.com/abstract=871215 or http://dx.doi.org/10.2139/ssrn.871215

John Robert Graham

Duke University ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Shivaram Rajgopal (Contact Author)

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Paper statistics

Downloads
2,711
Rank
3,374
Abstract Views
9,461