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INTERIM EARNINGS MANAGEMENT AND THE FOURTH QUARTER GOOD NEWS EFFECT
Author(s) -
Dempsey Stephen J.
Publication year - 1994
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1994.tb00354.x
Subject(s) - interim , quarter (canadian coin) , earnings , audit , variance (accounting) , econometrics , economics , actuarial science , monetary economics , demographic economics , accounting , business , political science , history , archaeology , law
This paper presents evidence of a larger return reaction (variance) to fourth quarter announcements that induce contemporaneously positive returns. The results are consistent with: (i) audited annual announcements being marginally more informative for reports that corroborate previously unaudited interim good news claims, and (ii) the level of marginal informativeness being a decreasing function of interim auditor involvement (proxied by firm size). The good news effect is robust over time, and sensitivity analyses fail to support competing explanations for the effect attributable to report timing differences or comparatively noisy fourth quarter bad news reports.