Helpful comments were provided by workshop participants at the University of Washington, the Ninth Annual Conference on Financial Economics and Accounting, and the 23rd Annual Conference of the European Accounting Association, and, especially, Bob Bowen, Sandra Chamberlain, Jim Jiambalvo, Jane Kennedy, Mark Nelson, Gerald Salamon, and Terry Shevlin. The authors are especially thankful to Dawn Matsumoto for assistance in calculating her forecast management proxy. Financial support was provided by the Accounting Development Funds at the University of Washington and Santa Clara University.
Management of Earnings and Analysts' Forecasts to Achieve Zero and Small Positive Earnings Surprises
Article first published online: 7 JUL 2006
Journal of Business Finance & Accounting
Volume 33, Issue 5-6, pages 633–652, June/July 2006
How to Cite
Burgstahler, D. and Eames, M. (2006), Management of Earnings and Analysts' Forecasts to Achieve Zero and Small Positive Earnings Surprises. Journal of Business Finance & Accounting, 33: 633–652. doi: 10.1111/j.1468-5957.2006.00630.x
- Issue published online: 7 JUL 2006
- Article first published online: 7 JUL 2006
- (Paper received November 2005, revised version accepted March 2006)
- earnings management;
- forecast management
Abstract: 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.