Knowledge that Transforms

Previous studies of the socialization of trainee accountants put emphasis on how disciplinary power mechanisms shape their professional identities. Literature on the ongoing growth and commercialization of the Big 4 Accounting Firms suggests that senior employees, and especially partners, have to be understood as entrepreneurially minded agents. These two bodies of knowledge provide the theoretical vantage point for our empirical analysis of the “missing link” between trainee and partner – the manager. Based on an ethnographic study of a Big 4 Firm (pseudonym Sky Accounting), we suggest understanding the career step of the manager as a rite of passage that has two effects: first, managers experience that their previous identity is destabilized; and second, our study shows how a set of new practices (performing, playing games and politicking) shape the identity of managers, enabling them to navigate the complex organizational network of a Big 4 Firm. We conclude our paper with a discussion of power effects of the rite of passage, how it shapes the identity of managers, and the practice of managerial work in a Big 4 Accounting Firm.

Using 18,253 firm-year observations from 1998 through 2003, we build on literature suggesting that more informative disclosures allow returns to better reflect future earnings and test whether management earnings per share forecasts and their characteristics influence the future earnings response coefficient (FERC). We find that FERCs are greater for forecasting firms and when forecasts are more frequent or precise. We suggest that more frequent and more precise forecasts assist investors in better predicting future earnings. Importantly, we find that quarterly and short-term forecasts incrementally increase the association between returns and future earnings beyond annual and long-term forecasts; thus, even short-term, quarterly forecasts allow investors to form better expectations about future earnings. This suggests a benefit of quarterly earnings forecasts possibly overlooked in recommendations from the United States Chamber of Commerce, CFA Institute, Business Roundtable Institute for Corporate Ethics, and The Conference Board to eliminate quarterly earnings guidance.