Meeting or Beating Analyst Expectations in the Post-Scandals World: Changes in Stock Market Rewards and Managerial Actions

44 Pages Posted: 3 Feb 2006

See all articles by Kevin Koh

Kevin Koh

Nanyang Technological University (NTU) - Nanyang Business School

Dawn A. Matsumoto

University of Washington - Department of Accounting

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

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Date Written: April 24, 2007

Abstract

The pressure to meet/beat analysts' expectations is often blamed for the recent onslaught of accounting scandals. We investigate changes in the meeting/beating phenomenon post-scandals and find that the stock market premium to meeting or just beating analyst estimates has disappeared while the premium to beating by a larger margin has diminished. In the post-scandals period, managers tend to meet or just beat analysts' forecasts less often. Further, managers rely less on income-increasing discretionary accruals and more on earnings guidance. Consistent with lower earnings management, the relation between meeting/beating and future operating performance has increased post-scandals, suggesting that the decline in market premium is possibly unwarranted.

Keywords: Enron, Sarbanes Oxley, Earnings Management, Analysts Forecasts

JEL Classification: G29, M41, M43, G38, J33

Suggested Citation

Koh, Kevin and Matsumoto, Dawn and Rajgopal, Shivaram, Meeting or Beating Analyst Expectations in the Post-Scandals World: Changes in Stock Market Rewards and Managerial Actions (April 24, 2007). Available at SSRN: https://ssrn.com/abstract=879831 or http://dx.doi.org/10.2139/ssrn.879831

Kevin Koh

Nanyang Technological University (NTU) - Nanyang Business School ( email )

S3-B2C-96, Nanyang Avenue
Nanyang Business School , NTU
Singapore, 639798
Singapore
(+65) 6790 4096 (Phone)

Dawn Matsumoto (Contact Author)

University of Washington - Department of Accounting ( email )

224 Mackenzie Hall, Box 353200
Seattle, WA 98195-3200
United States
206-543-4454 (Phone)
206-685-9392 (Fax)

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

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