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How entrenched managers beat earnings expectations before and after SOX

Author

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  • Wang, Weishen
  • Graefe-Anderson, Rachel
  • Pyles, Mark K.
  • Kim, Dongnyoung

Abstract

This study investigates the relationship between managerial entrenchment and how firms meet or beat earnings forecasts. It further examines whether this relationship changes before and after the Sarbanes–Oxley Act (SOX). We find that, in the pre-SOX era, entrenched managers meet or exceed analyst forecasts more often than their unentrenched counterparts when analysts’ initial forecasts are high. This is mainly due to the drop in analysts’ consensus rather than earnings management. These results nearly disappear in the post-SOX era.

Suggested Citation

  • Wang, Weishen & Graefe-Anderson, Rachel & Pyles, Mark K. & Kim, Dongnyoung, 2014. "How entrenched managers beat earnings expectations before and after SOX," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(1), pages 82-91.
    • Handle: RePEc:eee:quaeco:v:54:y:2014:i:1:p:82-91
    DOI: 10.1016/j.qref.2013.07.007
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    More about this item

    Keywords

    Corporate governance; Management entrenchment; Earnings expectation; Earnings management; Expectation management; Sarbanes–Oxley Act (SOX);
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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