Earnings management or forecast guidance to meet analyst expectations?

Earnings management or forecast guidance to meet analyst expectations?
Document type
Working Paper
Author(s)
Athanasakou, Vasiliki; Strong, Norman; Walker, Martin
Publisher
Manchester Business School
Date of publication
1 February 2007
Series
University of Manchester Business School Working Papers. No. 503
Subject(s)
Trends: economic, social and technology trends affecting business
Collection
Business and management
Material type
Reports

This item is only available to registered users

Register now or Log in

Your use of this content is subject to the terms and conditions of this portal

This paper examines whether UK firms engage in earnings management or forecast guidance over the period 1994−2002 in order to ensure that their reported earnings meet analyst earnings expectations. The authors explore two earnings management mechanisms: 

  1. the use of positive abnormal working capital accruals, and 
  2. classification shifting of core expenses to non-recurring items. 

They find no evidence of a positive association between income-increasing abnormal working capital accruals and the
probability of meeting analyst forecasts. Instead they find evidence consistent with larger firms shifting small core expenses to other non-recurring items to just hit analyst expectations with core earnings. They also find that the probability of meeting analyst expectations increases with downward guided forecasts. Overall the results suggest that UK firms are more likely to engage in earnings forecast guidance or, for an important subset of firms, in classification shifting rather than in accruals management to avoid negative earnings surprises.

Related to Trends: economic, social and technology trends affecting business

Preparing for the next normal: build modified resilient operations

Downloadable article on building resilient operations during the COVID-19 recovery phase

The learning curve: how the UK is harnessing the potential of online learning: report summary

Downloadable summary of a report on the potential of online learning in the UK

Tech trends 2020: UK edition

Downloadable article on the tech trends for 2020

Follow the money: exploring the link between UK growth and workers' pay packets

Downloadable briefing note looking at the relationship between productivity and pay growth

More items related to this subject