Expectations Management and Stock Returns

Travis L Johnson, Jinhwan Kim, Eric C So and Lauren Cohen

The Review of Financial Studies, 2020, vol. 33, issue 10, 4580-4626

Abstract: We establish a link between firms managing investors’ performance expectations, earnings announcement premiums, and cyclical patterns (i.e., seasonalities) in returns. Firms that are more likely to manage expectations toward beatable levels predictably earn lower returns before, and higher returns during, their earnings announcements. This pattern repeats across firms’ fiscal quarters, suggesting firms manufacture positive “surprises” by negatively biasing investors’ expectations ahead of announcing earnings. We corroborate these findings using non-price-based outcomes indicative of expectations management. Together, our findings are consistent with the pressure for firms to meet earnings targets shaping the cross-section of firms’ stock returns.

Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhz141 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:33:y:2020:i:10:p:4580-4626.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().