Investor skepticism and the incremental effects of small positive sales surprises

Michael Shih

Journal of Economics and Business, 2019, vol. 106, issue C

Abstract: Prior research suggests that investors see a small positive earnings surprise as a warning sign indicating a higher chance of creative accounting. This study finds that investors see a small positive sales surprise as another warning sign of manipulation. I compare the coefficient in the regression of abnormal stock returns on sales surprise (while controlling for earnings surprise) across subsamples of firms. The coefficient is lower for firms with small positive sales surprises than firms with sales surprises in any other range. I also find that while a positive sales surprise is generally regarded as good news, a small positive sales surprise has no significant effect on abnormal stock returns among firms reporting a small positive earnings surprise.

Keywords: Earnings management (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:106:y:2019:i:c:s0148619518302522

DOI: 10.1016/j.jeconbus.2019.105847

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