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

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  • David Burgstahler
  • Michael Eames

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. Copyright 2006 The Authors Journal compilation (c) 2006 Blackwell Publishing Ltd.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:jbfnac:v:33:y:2006-06:i:5-6:p:633-652
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