Corporate investment and earnings surprises

Details

Serval ID
serval:BIB_B676F2641100
Type
Article: article from journal or magazin.
Collection
Publications
Institution
Title
Corporate investment and earnings surprises
Journal
The European Journal of Finance
Author(s)
Markarian Garen, Michenaud Sebastien
ISSN
1351-847X
1466-4364
Publication state
Published
Issued date
02/11/2019
Volume
25
Number
16
Pages
1485-1509
Language
english
Abstract
We find that firm-level investment is negatively related to the likelihood of meeting or beating analysts’ short-term EPS forecasts. In a 35-year panel dataset of US based companies, we find evidence that suggests firms with the best growth opportunities, opaque firms, and firms with higher than usual bonus compensation, are the ones to alter investment in order to beat benchmarks. Utilizing the passage of Sarbanes-Oxley as a natural experiment we find that firms trade off accruals-based earnings management in lieu of investment cuts. Results are robust to a number of covariates, and endogeneity or reverse causality does not seem to drive our inferences. This study suggests that, consistent with survey results from Graham, Harvey, and Rajgopal [2005. “The Economic Implications of Corporate Financial Reporting.” Journal of Accounting and Economics 40: 3–73], managers may reduce or delay corporate investment to meet or beat short-term earnings benchmarks.
Keywords
analyst forecasts, Investment myopia, performance benchmark
Web of science
Create date
05/05/2021 9:03
Last modification date
06/05/2021 5:35
Usage data