The Accounting Review Vol. 77 No. 3 2002
Management's Incentives to Avoid Negative Earnings Surprises
Abstract
Recent reports in the business press allege that managers take actions to avoid negative earnings surprises. I hypothesize that certain firm characteristics are associated with greater incentives to avoid negative surprises. I find that firms with higher transient institutional ownership, greater reliance on implicit claims with their stakeholders, and higher value-relevance of earnings are more likely to meet or exceed expectations at the earnings announcement. I also examine whether firms manage earnings upward or guide analysts' forecasts downward to avoid missing expectations at the earnings announcement. I examine the relation between firm characteristics and the probability (conditional on meeting analysts' expectations) of having (1) positive abnormal accruals, and (2) forecasts that are lower than expected (using a model of prior earnings changes). Overall, the results suggest that both mechanisms play a role in avoiding negative earnings surprises.
- DOI
- 10.2308/accr.2002.77.3.483
- Volume
- 77
- Issue
- 3
- Pages
- 483-514
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref