Has Regulation Changed the Market's Reward for Meeting or Beating Expectations?

FOCUS ON FINANCE AND ACCOUNTING RESEARCH, M. Neelan, ed., Nova Publishers, Hauppauge, NY, Forthcoming

24 Pages Posted: 18 Aug 2006

See all articles by Jan L. Williams

Jan L. Williams

University of Baltimore

Peter J. DaDalt

Susquehanna University

Huey-Lian Sun

Morgan State University - Department of Accounting and Finance

Varda Lewinstein Yaari

Abstract

A firm meets or beats expectations when it reports earnings that are at or above the consensus analysts' forecast. We argue that two types of firms MBE: strong firms who commit to future performance and signal future earnings by MBE, and weak firms who attempt to mimic strong firms by managing either expectations or earnings. Using a sample of 4,152 earnings announcements for firms that habitually MBE between 1999 and 2004, we find that the incidence of expectations (earnings) management decreased following the enactment of Regulation FD (Sarbanes Oxley). In addition, we find that the market reactions to MBE achieved through managing expectations declined significantly following the enactment of Regulation FD, but not to MBE achieved by managing earnings following the enactment of the Sarbanes-Oxley Act.

Keywords: earnings management, expectations management, analysts' forecasts, earnings expectations, Regulation FD, Sarbanes Oxley

JEL Classification: G29, M41, M43, M45, G34, G38

Suggested Citation

Williams, Jan L. and DaDalt, Peter J. and Sun, Huey-Lian and Yaari, Varda Lewinstein, Has Regulation Changed the Market's Reward for Meeting or Beating Expectations?. FOCUS ON FINANCE AND ACCOUNTING RESEARCH, M. Neelan, ed., Nova Publishers, Hauppauge, NY, Forthcoming, Available at SSRN: https://ssrn.com/abstract=925193

Jan L. Williams (Contact Author)

University of Baltimore ( email )

Merrick School of Business
1420 N. Charles Street
Baltimore, MD 21201
United States
410.837.6593 (Phone)
410.837.5722 (Fax)

Peter J. DaDalt

Susquehanna University ( email )

Selinsgrove, PA 17870
United States
5703724524 (Phone)

Huey-Lian Sun

Morgan State University - Department of Accounting and Finance ( email )

Baltimore, MD 21251
United States
443-885-3971 (Phone)
410-319-3721 (Fax)

No contact information is available for Varda Lewinstein Yaari

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