What's my target? Individual analyst forecasts and last-chance earnings management

Erik L. Beardsley, John R. Robinson and Paul A. Wong

Journal of Accounting and Economics, 2021, vol. 72, issue 1

Abstract: Kirk, Reppenhagen, and Tucker (2014) find that investors use individual analyst forecasts as additional earnings benchmarks. We investigate whether executives manage earnings to beat these individual benchmarks. Using year-end effective tax rate (ETR) manipulation as our setting, we find that firms decrease ETRs from 3rd to 4th quarter to meet or beat a greater percentage of individual forecasts. We also find some evidence that firms use incremental ETR changes to meet forecasts by key analysts. After controlling for the distance to the nearest forecast, our evidence shows that firms are more likely to beat an incremental forecast with a decrease in ETR compared to missing an incremental forecast with an increase in ETR. Our study highlights the strategic nature of earnings management by providing evidence that managers consider individual forecasts to calibrate earnings management decisions.

Keywords: Earnings management; Consensus forecast; Analyst forecasts; Forecast dispersion; Tax expense; Analyst heterogeneity (search for similar items in EconPapers)
JEL-codes: H25 M41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:72:y:2021:i:1:s0165410121000380

DOI: 10.1016/j.jacceco.2021.101423

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