Management of Earnings and Analysts' Forecasts to Achieve Zero and Small Positive Earnings Surprises

20 Pages Posted: 13 Aug 2006

See all articles by David Burgstahler

David Burgstahler

University of Washington

Michael Eames

Santa Clara University - Accounting

Abstract

This paper corroborates the finding of prior studies that managers avoid reporting earnings lower than analyst forecasts (i.e., negative earnings surprises) and provides new evidence of actions contributing to this phenomenon. Specifically, we provide empirical evidence of both (1) upward management of reported earnings and (2) downward management of analysts' forecasts to achieve zero and small positive earnings surprises. Further analysis of the components of earnings management suggests that both the operating cash flow and discretionary accruals components of earnings are managed.

JEL Classification: M41, M43, G29

Suggested Citation

Burgstahler, David C. and Eames, Michael, Management of Earnings and Analysts' Forecasts to Achieve Zero and Small Positive Earnings Surprises. Journal of Business Finance & Accounting, Vol. 33, No. 5-6, pp. 633-652, June/July 2006, Available at SSRN: https://ssrn.com/abstract=924046 or http://dx.doi.org/10.1111/j.1468-5957.2006.00630.x

David C. Burgstahler (Contact Author)

University of Washington ( email )

555 Paccar Hall, Box 353226
Seattle, WA 98195-3226
United States
206-543-6316 (Phone)
206-685-9392 (Fax)

Michael Eames

Santa Clara University - Accounting ( email )

Santa Clara, CA 95053
United States

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