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The role of corporate governance in meeting or beating analysts' forecast

Davit Adut, Augustine Duru and Wendy Liu Galpin

Journal of Accounting and Public Policy, 2011, vol. 30, issue 2, 188-198

Abstract: Meeting or beating analysts' forecasts is a topic of considerable interest in the academic and business communities. Some studies indicate a favorable market response when firms meet or beat analysts' earnings forecasts, but others suggest managers opportunistically manage earnings to achieve earnings targets. We investigate the relation between corporate governance mechanisms and meeting or exceeding analysts' expectations and find that attributes of corporate governance are related to the likelihood of consistently meeting or exceeding consensus forecasts. We extend current literature by showing that some attributes of strong corporate governance mechanisms lower agency costs associated with consistently meeting or beating analysts' expectations. We also find that compensation committees reward managers for consistently meeting or beating analysts' forecasts.

Date: 2011
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