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Management of Earnings and Analysts' Forecasts to Achieve Zero and Small Positive Earnings Surprises
Author(s) -
Burgstahler David,
Eames Michael
Publication year - 2006
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.1468-5957.2006.00630.x
Subject(s) - accrual , earnings management , earnings , cash flow , earnings response coefficient , empirical evidence , economics , business , operating cash flow , accounting , econometrics , monetary economics , philosophy , epistemology
This paper corroborates the finding of prior studies that managers avoid reporting earnings lower than analyst forecasts (i.e., negative earnings surprises) and provides new evidence of actions contributing to this phenomenon. Specifically, we provide empirical evidence of both (1) upward management of reported earnings and (2) downward ‘management’ of analysts' forecasts to achieve zero and small positive earnings surprises. Further analysis of the components of earnings management suggests that both the operating cash flow and discretionary accruals components of earnings are managed.