This study adds to the earnings guidance debate by investigating whether quarterly guidance is related to two forms of earnings management: (1) benchmark beating and (2) accounting irregularities. Using a post-Regulation Fair Disclosure sample, I find that firms regularly issuing earnings guidance display a discontinuity around zero in their distribution of management forecast errors and a larger discontinuity in their distribution of analyst forecast errors compared to non-guiding firms. Multivariate tests reveal that guiding firms recognize large abnormal accruals to beat their own guidance, but not to beat analyst forecasts, whereas non-guiding firms do recognize large abnormal accruals to beat analyst forecasts. Overall, guiding firms and non-guiding firms use similar levels of abnormal accruals to beat benchmarks. I also find no statistical relation between quarterly guidance and the likelihood of accounting irregularities. In sum, the evidence shows that while guiding firms and non-guiding firms manage earnings to different benchmarks, they are similar in terms of their aggregate earnings management.
| Identifer | oai:union.ndltd.org:uiowa.edu/oai:ir.uiowa.edu:etd-2500 |
| Date | 01 July 2011 |
| Creators | Acito, Andrew Alexei |
| Contributors | Johnson, W. Bruce |
| Publisher | University of Iowa |
| Source Sets | University of Iowa |
| Language | English |
| Detected Language | English |
| Type | dissertation |
| Format | application/pdf |
| Source | Theses and Dissertations |
| Rights | Copyright 2011 Andrew Acito |
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