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

Robert G Rambo
Providence College

Jacquelyn S Moffitt
Louisiana State University

Abstract: We examine the differences between the unexpected returns of firms reporting earnings early and late, and argue that the differences reflect the market’s initial assessment of a higher probability of earnings management for late reporters. The subsequent release of the SEC filings provides the market with the necessary financial information to adjust its initial estimate of the probability the firm engaged in earnings management. We expect the unexpected returns over a short window centered on the SEC filing date and unexpected abnormal accruals to be dependent on whether the firm reported earnings early or late. We find higher returns around the SEC filing date for late earnings reporting firms with relatively low unexpected accruals relative to early reporting firms with relatively low unexpected accruals, and lower returns for early earnings reporting firms with relatively high unexpected accruals relative to late reporting firms with relatively high unexpected accruals.

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