IDEAS home Printed from https://ideas.repec.org/a/bla/acctfi/v66y2026i1p80-105.html

Accruals Management to Meet or Beat Earnings Performance of Peer Firms

Author

Listed:
  • Abhijit Barua
  • Jung Hoon Kim
  • Sheng Yi

Abstract

This study shows that firms tend to engage in accruals management in the fourth quarter when (1) their cumulative earnings for the first three quarters fall below their peers, but their actual annual earnings exceed their peers, and (2) their expected annual earnings (measured by analysts' consensus forecasts) fall below their peers, but their actual annual earnings exceed their peers. We also find that firms that manage fourth‐quarter accruals to meet or beat the peer firms' annual earnings are positively associated with subsequent restatements. Thus, our study provides evidence that peer firms' earnings serve as an important earnings benchmark.

Suggested Citation

  • Abhijit Barua & Jung Hoon Kim & Sheng Yi, 2026. "Accruals Management to Meet or Beat Earnings Performance of Peer Firms," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 66(1), pages 80-105, March.
    • Handle: RePEc:bla:acctfi:v:66:y:2026:i:1:p:80-105
    DOI: 10.1111/acfi.70119
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/acfi.70119
    Download Restriction: no
    File URL: https://libkey.io/10.1111/acfi.70119?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. David Burgstahler & Michael Eames, 2006. "Management of Earnings and Analysts' Forecasts to Achieve Zero and Small Positive Earnings Surprises," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(5-6), pages 633-652.
    2. Douglas J. Skinner & Richard G. Sloan, 2002. "Earnings Surprises, Growth Expectations, and Stock Returns or Don't Let an Earnings Torpedo Sink Your Portfolio," Review of Accounting Studies, Springer, vol. 7(2), pages 289-312, June.
    3. Barro, Jason R & Barro, Robert J, 1990. "Pay, Performance, and Turnover of Bank CEOs," Journal of Labor Economics, University of Chicago Press, vol. 8(4), pages 448-481, October.
    4. Gong, Guojin & Li, Laura Yue & Yin, Huifang, 2019. "Relative performance evaluation and the timing of earnings release," Journal of Accounting and Economics, Elsevier, vol. 67(2), pages 358-386.
    5. Barth, ME & Elliott, JA & Finn, MW, 1999. "Market rewards associated with patterns of increasing earnings," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 37(2), pages 387-413.
    6. Do, Truc & Zhang, Huai & Zuo, Luo, 2022. "Rocking the boat: How relative performance evaluation affects corporate risk taking," Journal of Accounting and Economics, Elsevier, vol. 73(1).
    7. Brian J. Hall & Jeffrey B. Liebman, 1998. "Are CEOs Really Paid Like Bureaucrats?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 653-691.
    8. Lee, Charles M.C. & Ma, Paul & Wang, Charles C.Y., 2015. "Search-based peer firms: Aggregating investor perceptions through internet co-searches," Journal of Financial Economics, Elsevier, vol. 116(2), pages 410-431.
    9. Robert Gibbons & Kevin J. Murphy, 1990. "Relative Performance Evaluation for Chief Executive Officers," ILR Review, Cornell University, ILR School, vol. 43(3), pages 30, April.
    10. George Baker, 2002. "Distortion and Risk in Optimal Incentive Contracts," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 728-751.
    11. Yong Gyu Lee, 2014. "An examination of restructuring charges surrounding the implementation of SFAS 146," Review of Accounting Studies, Springer, vol. 19(2), pages 539-572, June.
    12. Hansen, James C., 2010. "The effect of alternative goals on earnings management studies: An earnings benchmark examination," Journal of Accounting and Public Policy, Elsevier, vol. 29(5), pages 459-480, September.
    13. Degeorge, Francois & Patel, Jayendu & Zeckhauser, Richard, 1999. "Earnings Management to Exceed Thresholds," The Journal of Business, University of Chicago Press, vol. 72(1), pages 1-33, January.
    14. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    15. Mark T. Bradshaw & Scott A. Richardson & Richard G. Sloan, 2001. "Do Analysts and Auditors Use Information in Accruals?," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 39(1), pages 45-74, June.
    16. Heng An & Yul W. Lee & Ting Zhang, 2014. "Do corporations manage earnings to meet/exceed analyst forecasts? Evidence from pension plan assumption changes," Review of Accounting Studies, Springer, vol. 19(2), pages 698-735, June.
    17. Bartov, Eli & Givoly, Dan & Hayn, Carla, 2002. "The rewards to meeting or beating earnings expectations," Journal of Accounting and Economics, Elsevier, vol. 33(2), pages 173-204, June.
    18. Roychowdhury, Sugata, 2006. "Earnings management through real activities manipulation," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 335-370, December.
    19. Albuquerque, Ana, 2009. "Peer firms in relative performance evaluation," Journal of Accounting and Economics, Elsevier, vol. 48(1), pages 69-89, October.
    20. David Burgstahler & Michael Eames, 2006. "Management of Earnings and Analysts' Forecasts to Achieve Zero and Small Positive Earnings Surprises," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(5‐6), pages 633-652, June.
    21. Beatty, Anne & Liao, Scott & Yu, Jeff Jiewei, 2013. "The spillover effect of fraudulent financial reporting on peer firms' investments," Journal of Accounting and Economics, Elsevier, vol. 55(2), pages 183-205.
    22. Ron Kasznik & Maureen F. McNichols, 2002. "Does Meeting Earnings Expectations Matter? Evidence from Analyst Forecast Revisions and Share Prices," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 40(3), pages 727-759, June.
    23. DeFond, Mark L. & Park, Chul W., 1997. "Smoothing income in anticipation of future earnings," Journal of Accounting and Economics, Elsevier, vol. 23(2), pages 115-139, July.
    24. Antle, R & Smith, A, 1986. "An Empirical-Investigation Of The Relative Performance Evaluation Of Corporate-Executives," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 24(1), pages 1-39.
    25. Hemang Desai & Srinivasan Krishnamurthy & Kumar Venkataraman, 2006. "Do Short Sellers Target Firms with Poor Earnings Quality? Evidence from Earnings Restatements," Review of Accounting Studies, Springer, vol. 11(1), pages 71-90, March.
    26. Du, Qianqian & Shen, Rui, 2018. "Peer performance and earnings management," Journal of Banking & Finance, Elsevier, vol. 89(C), pages 125-137.
    27. Burgstahler, David & Dichev, Ilia, 1997. "Earnings management to avoid earnings decreases and losses," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 99-126, December.
    28. Richard Cazier & Sonja Rego & Xiaoli Tian & Ryan Wilson, 2015. "The impact of increased disclosure requirements and the standardization of accounting practices on earnings management through the reserve for income taxes," Review of Accounting Studies, Springer, vol. 20(1), pages 436-469, March.
    29. Kini, Omesh & Williams, Ryan, 2012. "Tournament incentives, firm risk, and corporate policies," Journal of Financial Economics, Elsevier, vol. 103(2), pages 350-376.
    30. Cohen, Daniel A. & Zarowin, Paul, 2010. "Accrual-based and real earnings management activities around seasoned equity offerings," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 2-19, May.
    31. Lawrence D. Brown & Arianna Spina Pinello, 2007. "To What Extent Does the Financial Reporting Process Curb Earnings Surprise Games?," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 45(5), pages 947-981, December.
    32. Gerald Garvey & Todd Milbourn, 2003. "Incentive Compensation When Executives Can Hedge the Market: Evidence of Relative Performance Evaluation in the Cross Section," Journal of Finance, American Finance Association, vol. 58(4), pages 1557-1582, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xia, Jingjing, 2023. "Redrawing the line: Narrowly beating analyst forecasts and journalists’ co-coverage choices in earnings-related news articles," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(3).
    2. Zhang, Yiyang & Perols, Johan & Robinson, Dahlia & Smith, Thomas, 2018. "Earnings management strategies to maintain a string of meeting or beating analyst expectations," Advances in accounting, Elsevier, vol. 43(C), pages 46-55.
    3. Chang, Chu-Hsuan & Lin, Hsiou-Wei William, 2018. "Does there prevail momentum in earnings management for seasoned equity offering firms?," International Review of Economics & Finance, Elsevier, vol. 55(C), pages 111-129.
    4. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    5. Wenxia Ge & Jeong-Bon Kim, 2014. "Boards, takeover protection, and real earnings management," Review of Quantitative Finance and Accounting, Springer, vol. 43(4), pages 651-682, November.
    6. Halaoua, Sameh & Hamdi, Badreddine & Mejri, Tarek, 2017. "Earnings management to exceed thresholds in continental and Anglo-Saxon accounting models: The British and French cases," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 513-529.
    7. Gilliam, Thomas A. & Heflin, Frank & Paterson, Jeffrey S., 2015. "Evidence that the zero-earnings discontinuity has disappeared," Journal of Accounting and Economics, Elsevier, vol. 60(1), pages 117-132.
    8. Bird, Andrew & Karolyi, Stephen A. & Ruchti, Thomas G., 2019. "Understanding the “numbers game”," Journal of Accounting and Economics, Elsevier, vol. 68(2).
    9. Barua, Abhijit & Kim, Jung Hoon & Yi, Sheng, 2019. "Hierarchy of earnings thresholds based on discretionary accruals," Advances in accounting, Elsevier, vol. 44(C), pages 29-48.
    10. Bilinski, Pawel & Lyssimachou, Danielle, 2018. "Dividend guidance to manage analyst dividend expectations," International Review of Financial Analysis, Elsevier, vol. 60(C), pages 53-68.
    11. Martin Nienhaus, 2022. "Executive equity incentives and opportunistic manager behavior: new evidence from a quasi-natural experiment," Review of Accounting Studies, Springer, vol. 27(4), pages 1276-1318, December.
    12. Joseph Legoria & Kevin D. Melendrez & J. Kenneth Reynolds, 2013. "Qualitative audit materiality and earnings management," Review of Accounting Studies, Springer, vol. 18(2), pages 414-442, June.
    13. Imran S. Currim & Jooseop Lim & Yu Zhang, 2018. "Effect of analysts’ earnings pressure on marketing spending and stock market performance," Journal of the Academy of Marketing Science, Springer, vol. 46(3), pages 431-452, May.
    14. Masahiro Enomoto & Tomoyasu Yamaguchi, 2015. "Discontinuities in Earnings and Earnings Change Distributions after J-SOX Implementation: Empirical evidence from Japan," Discussion Paper Series DP2015-26, Research Institute for Economics & Business Administration, Kobe University, revised Oct 2016.
    15. Edmonds, Christopher T. & Edmonds, Jennifer E. & Fu, Richard & Jenkins, David S., 2018. "Price momentum and the premium for meeting or beating analysts' forecasts of earnings," Advances in accounting, Elsevier, vol. 42(C), pages 34-47.
    16. Talal Zebian & Terry Harris & Omneya Abdelsalam, 2025. "Adaptability culture and meeting or beating analysts’ estimates," Review of Quantitative Finance and Accounting, Springer, vol. 65(2), pages 471-537, August.
    17. Beardsley, Erik L. & Robinson, John R. & Wong, Paul A., 2021. "What's my target? Individual analyst forecasts and last-chance earnings management," Journal of Accounting and Economics, Elsevier, vol. 72(1).
    18. Iuliia Brushko & Stephen P. Ferris & Jan Hanousek & Jiri Tresl, 2020. "Intra-Industry Transfer of Information Inferred From Trading Volume," CERGE-EI Working Papers wp663, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    19. repec:ipg:wpaper:2014-429 is not listed on IDEAS
    20. Emmanuel Mamatzakis & Anna Bagntasarian, 2021. "The nexus between CEO incentives and analysts' earnings forecasts," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6205-6248, October.
    21. Jared Jennings & Hojun Seo & Mark T. Soliman, 2020. "The market’s reaction to changes in relative performance rankings," Review of Accounting Studies, Springer, vol. 25(2), pages 672-725, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:acctfi:v:66:y:2026:i:1:p:80-105. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/aaanzea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.