Short-term earnings guidance and accrual-based earnings management

Andrew Call, Shuping Chen, Bin Miao, Yen H. Tong

Research output: Contribution to journalArticle

19 Citations (Scopus)

Abstract

Motivated by recent practitioners' concerns that short-term earnings guidance leads to managerial myopia, we investigate the impact of short-term earnings guidance on earnings management. Using a propensity-score matched control sample, we find strong and consistent evidence that the issuance of short-term quarterly earnings guidance is associated with less, rather than more, earnings management. We also find that regular guiders exhibit less earnings management than do less regular guiders. Our findings hold using both abnormal accruals and discretionary revenues to measure earnings management and after controlling for potential reverse causality concerns. Furthermore, in a setting where managers have particularly strong capital market incentives to manage earnings, we corroborate these findings by documenting that earnings guidance either has no impact on or mitigates earnings management. Overall, our evidence does not support the criticism from practitioners that short-term earnings guidance leads to more earnings management.

Original languageEnglish (US)
Pages (from-to)955-987
Number of pages33
JournalReview of Accounting Studies
Volume19
Issue number2
DOIs
StatePublished - 2014

Fingerprint

Earnings management
Earnings guidance
Capital markets
Incentives
Managerial myopia
Criticism
Propensity score
Causality
Abnormal accruals
Managers
Revenue

Keywords

  • Abnormal accruals
  • Discretionary revenues
  • Earnings guidance
  • Earnings management
  • Management forecasts

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Accounting

Cite this

Short-term earnings guidance and accrual-based earnings management. / Call, Andrew; Chen, Shuping; Miao, Bin; Tong, Yen H.

In: Review of Accounting Studies, Vol. 19, No. 2, 2014, p. 955-987.

Research output: Contribution to journalArticle

Call, Andrew ; Chen, Shuping ; Miao, Bin ; Tong, Yen H. / Short-term earnings guidance and accrual-based earnings management. In: Review of Accounting Studies. 2014 ; Vol. 19, No. 2. pp. 955-987.
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