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Earnings management or forecast guidance to meet analyst expectations

Athanasakou, Vicky E; Strong, Norman C; Walker, Martin

Accounting and Business Research. 2009;39:3-35.

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Abstract

We examine whether UK firms engage in earnings management or forecast guidance to ensure that their reported earnings meet analyst earnings expectations. We explore two earnings management mechanisms: a) positive abnormal working capital accruals and b) classification shifting of core expenses to non-recurring items. We find no evidence of a positive association between income-increasing abnormal working capital accruals and the probability of meeting analyst forecasts. Instead we find evidence consistent with a subset of larger firms shifting small core expenses to other non-recurring items to just hit analyst expectations with core earnings. We also find that the probability of meeting analyst expectations increases with downward guided forecasts. Overall our results suggest that UK firms are more likely to engage in earnings forecast guidance or, for a subset of larger firms, in classification shifting rather than in accruals management to avoid negative earnings surprises.

Bibliographic metadata

Type of resource:
Content type:
Publication type:
Publication form:
Published date:
Volume:
39
Start page:
3
End page:
35
Total:
33
Pagination:
3-35
Digital Object Identifier:
10.1080/00014788.2009.9663347
Access state:
Active

Institutional metadata

University researcher(s):

Record metadata

Manchester eScholar ID:
uk-ac-man-scw:1g1
Created:
21st September, 2009, 22:19:39
Last modified by:
Walker, Martin
Last modified:
28th May, 2015, 21:08:25

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