The Effect of Earnings-Announcement Timing on Earnings Management
Mary L. Chai and
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Mary L. Chai: University of Macau,
Journal of Business Finance & Accounting, 2002, vol. 29, issue 9&10, 1337-1354
This paper examines whether firms which delay earnings announcements engage in earnings management. The cross-sectional version of the modified Jones 1995 model is used to estimate 'normal' accruals. Prior research has documented that, on average, delayed earnings announcements are associated with negative earnings surprises. Our evidence suggests that the market anticipates unfavorable earnings news when it observes reporting delays. As a consequence, late reporters appear to make the most of a bad situation by employing income-decreasing accruals in big-bath-type earnings management and in contractual renegotiations. We find that the magnitude of income-reducing abnormal accruals is related to the reporting lag. Copyright Blackwell Publishers Ltd 2002.
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