An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Kevin Koh
University of Washington

Dawn Matsumoto
University of Washington

Shiva Rajgopal
University of Washington

Abstract: The pressure to meet/beat analysts’ expectations is often blamed for the recent onslaught of accounting scandals. We investigate changes in the meeting/beating phenomenon post-Scandals and find that the stock market premium to meeting or just beating analyst estimates has disappeared while the premium to beating by a larger margin has diminished. In the post-Scandals period, managers tend to meet or just beat analysts’ forecasts less often. Further, managers rely less on income-increasing discretionary accruals and more on earnings guidance. Consistent with lower earnings management, the relation between meeting/beating and future operating performance has increased post-Scandals, suggesting that the decline in market premium is possibly unwarranted.

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