Earnings Management Constraints and Market Reactions to Subsequent Earnings Surprises

Persistent Link:
http://hdl.handle.net/10150/194787
Title:
Earnings Management Constraints and Market Reactions to Subsequent Earnings Surprises
Author:
Smith, Kevin R.
Issue Date:
2005
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
In this dissertation, I examine investors' use of balance sheet information to infer earnings management constraint and the extent to which they utilize that information to assess the quality of subsequent earnings surprises. Ex-ante constrained firms may not have sufficient ability to manage earnings towards desired earnings thresholds and thus their reported earnings surprises are more likely to be the result of real performance. Ex-ante flexible firms, however, have more room to manage earnings and so it becomes less clear to investors whether the reported earnings surprises are the result of real performance or earnings management. My tests provide mixed support for the constraint theory. I find evidence that the market reacts more to small positive earnings surprises when they are reported by ex-ante constrained firms than when reported by ex-ante flexible firms. This suggests that the market interprets the earnings surprise reported by constrained firms to be of higher quality. However, I also find that earnings surprises reported by ex-ante constrained firms are no more persistent with regard to one-year-ahead earnings than those reported by ex-ante flexible firms, a result that is not consistent with the differential reaction to earnings surprises.
Type:
text; Electronic Dissertation
Keywords:
Earnings Management; Analyst Forecasts
Degree Name:
PhD
Degree Level:
doctoral
Degree Program:
Accounting; Graduate College
Degree Grantor:
University of Arizona
Advisor:
Trombley, Mark A.
Committee Chair:
Trombley, Mark A.

Full metadata record

DC FieldValue Language
dc.language.isoENen_US
dc.titleEarnings Management Constraints and Market Reactions to Subsequent Earnings Surprisesen_US
dc.creatorSmith, Kevin R.en_US
dc.contributor.authorSmith, Kevin R.en_US
dc.date.issued2005en_US
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractIn this dissertation, I examine investors' use of balance sheet information to infer earnings management constraint and the extent to which they utilize that information to assess the quality of subsequent earnings surprises. Ex-ante constrained firms may not have sufficient ability to manage earnings towards desired earnings thresholds and thus their reported earnings surprises are more likely to be the result of real performance. Ex-ante flexible firms, however, have more room to manage earnings and so it becomes less clear to investors whether the reported earnings surprises are the result of real performance or earnings management. My tests provide mixed support for the constraint theory. I find evidence that the market reacts more to small positive earnings surprises when they are reported by ex-ante constrained firms than when reported by ex-ante flexible firms. This suggests that the market interprets the earnings surprise reported by constrained firms to be of higher quality. However, I also find that earnings surprises reported by ex-ante constrained firms are no more persistent with regard to one-year-ahead earnings than those reported by ex-ante flexible firms, a result that is not consistent with the differential reaction to earnings surprises.en_US
dc.typetexten_US
dc.typeElectronic Dissertationen_US
dc.subjectEarnings Managementen_US
dc.subjectAnalyst Forecastsen_US
thesis.degree.namePhDen_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineAccountingen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.contributor.advisorTrombley, Mark A.en_US
dc.contributor.chairTrombley, Mark A.en_US
dc.contributor.committeememberDhaliwal, Dan S.en_US
dc.contributor.committeememberSchwartz, William C.en_US
dc.identifier.proquest1051en_US
dc.identifier.oclc137353702en_US
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