Abstract

The pressure to meet/beat analysts' expectations is often blamed for the recent onslaught of accounting scandals. We investigate changes in the meeting/beating phenomenon post-scandals and find that the stock market premium to meeting or just beating analyst estimates has disappeared while the premium to beating by a larger margin has diminished. In the post-scandals period, managers tend to meet or just beat analysts' forecasts less often. Further, managers rely less on income-increasing discretionary accruals and more on earnings guidance. Consistent with lower earnings management, the relation between meeting/beating and future operating performance has increased post-scandals, suggesting that the decline in market premium is possibly unwarranted.

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Citation

Koh, Kevin, Dawn Matsumoto, and Shivaram Rajgopal. "Meeting or Beating Analyst Expectations in the Post-Scandals World: Changes in Stock Market Rewards and Managerial Actions." Contemporary Accounting Research 25, no. 4 (Winter 2008): 1067-1098.

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