Abstract
We investigate market behavior in a setting where managerial incentives to manipulate earnings and market price should be apparent ex ante to market participants. We find evidence of abnormally low discretionary accruals in the period following announcements of cancellations of executive stock options up to the time the options are reissued. Nevertheless, analysts and investors are not misled. Discretionary accruals have little power in explaining stock price performance during this period. Moreover, discretionary accruals do not explain subsequent analyst forecast errors. Thus, our findings suggest that, in this transparent setting, analysts and investors do not respond to earnings management.
Original language | English (US) |
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Pages (from-to) | 173-200 |
Number of pages | 28 |
Journal | Journal of Accounting and Economics |
Volume | 41 |
Issue number | 1-2 |
DOIs | |
State | Published - Apr 2006 |
Keywords
- Capital markets
- Discretionary accruals
- Earnings management
- Executive compensation
- Stock options
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics