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The market reward for achieving analyst earnings expectations: does managing expectations or earnings matter?

Athanasakou, Vasiliki E., Strong, Norman C and Walker, Martin (2011) The market reward for achieving analyst earnings expectations: does managing expectations or earnings matter? Journal of Business Finance and Accounting, 38 (1-2). pp. 58-94. ISSN 0306-686X

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Abstract

This study explores the market response to achieving analyst earnings expectations, distinguishing between expectations achieved through earnings forecast guidance and earnings management. We consider three earnings management tools: real earnings management, working capital accruals management, and classification shifting. Analysis indicates that UK firms use earnings forecast guidance and classification shifting to achieve analyst expectations. The market does not reward firms that achieve expectations through forecast guidance, and achievers that classification shift receive a lower market reward than genuine achievers. The market response aligns with information on future profitability and rational pricing tests show that there is no overall mispricing of achievers. Evidence of stock price incentives to engage in earnings forecast guidance is found only within more opportunistic downward forecast revisions mainly driven by high market growth expectations.

Item Type: Article
Official URL: http://www.blackwellpublishing.com/journal.asp?ref...
Additional Information: © 2010 Blackwell Publishing Ltd.
Library of Congress subject classification: H Social Sciences > HG Finance
Sets: Departments > Accounting
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 21 Apr 2011 09:16
URL: http://eprints.lse.ac.uk/35528/

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