Skip to main content
Article thumbnail
Location of Repository

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

By Vasiliki E. Athanasakou, Norman C Strong and Martin Walker

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

Topics: HG Finance
Publisher: Blackwell Publishing
Year: 2011
DOI identifier: 10.1111/j.1468-5957.2010.02219.x
OAI identifier: oai:eprints.lse.ac.uk:35528
Provided by: LSE Research Online
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • http://www.blackwellpublishing... (external link)
  • http://eprints.lse.ac.uk/35528... (external link)
  • Suggested articles


    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.