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Interim Earnings Management And The Fourth Quarter Good News Effect

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  • Stephen J. Dempsey

Abstract

This paper presents evidence of a larger return reaction (variance) to fourth quarter announcements that induce contemporaneously positive returns. The results are consistent with: (i) audited annual announcements being marginally more informative for reports that corroborate previously unaudited interim good news claims, and (ii) the level of marginal informativeness being a decreasing function of interim auditor involvement (proxied by firm size). The good news effect is robust over time, and sensitivity analyses fail to support competing explanations for the effect attributable to report timing differences or comparatively noisy fourth quarter bad news reports.

Suggested Citation

  • Stephen J. Dempsey, 1994. "Interim Earnings Management And The Fourth Quarter Good News Effect," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 21(6), pages 889-908, September.
    • Handle: RePEc:bla:jbfnac:v:21:y:1994:i:6:p:889-908
    DOI: 10.1111/j.1468-5957.1994.tb00354.x
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