Capital Market Prices, Management Forecasts, and Earnings Management

• DOI: 10.2139/ssrn.1028423
• Publication Date: 2011-12-28T17:26:19Z
• Authors: Anne Beyer
• Keywords: Earnings surprise; Earnings Management; Surprise

The paper studies a manager's optimal earnings forecasting strategy and management policy in setting where both the mean variance of distribution generating firm's cash flows are unknown. shows that equilibrium price firm is function forecast, reported earnings, squared error forecast. model contains several predictions, including: (i) manager manipulates to reduce his forecast at announcement date; (ii) stock more sensitive actual than forecast; (iii) controlling for level magnitude surprise, higher when it has positive surprise date negative surprise.