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Trading incentives to meet the analyst forecast

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  • Sarah McVay

    (New York University)

  • Venky Nagar

    (University of Michigan)

  • Vicki Wei Tang

    (Georgetown University)

Abstract

We examine stock sales as a managerial incentive to help explain the discontinuity around the analyst forecast benchmark. We find that the likelihood of just meeting versus just missing the analyst forecast is strongly associated with subsequent managerial stock sales. Moreover, we provide evidence that managers manage earnings prior to just meeting the threshold and selling their shares. Finally, the relation between just meeting and subsequently selling shares does not hold for non-manager insiders, who arguably cannot affect the earnings outcome, and is weaker in the presence of an independent board, suggesting that good corporate governance mitigates this strategic behavior.

Suggested Citation

  • Sarah McVay & Venky Nagar & Vicki Wei Tang, 2006. "Trading incentives to meet the analyst forecast," Review of Accounting Studies, Springer, vol. 11(4), pages 575-598, December.
    • Handle: RePEc:spr:reaccs:v:11:y:2006:i:4:d:10.1007_s11142-006-9017-9
    DOI: 10.1007/s11142-006-9017-9
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    4. Pei Hui Hsu, 2015. "Do financial expert directors affect the incidence of accruals management to meet or beat analyst forecasts?," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 22(4), pages 406-427, December.

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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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