Perverse market rewards for meeting or beating earnings expectations*

Mitchell Oler, Terence J. Pitre, Chang Joon Song

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

Approximately 47 (43) percent of the observations in our sample receive negative (positive) market rewards when they meet (miss) earnings expectations. We define these phenomena as perverse market rewards (PMR). We find that the likelihood of PMR is increased when (i) firms use earnings and/or expectations management; (ii) earnings growth is negative (positive) when earnings expectations are met (missed); and (iii) ownership by transient (dedicated) institutional investors is high when earnings expectations are met (missed). In addition, we find that, when earnings expectations are met (missed), PMR appears to be an indicator of bad (good) future stock performance. Our study demonstrates that gratuitous participation in the ‘numbers game’ does not always result in the desired market rewards.

Original languageEnglish
Pages (from-to)57-74
Number of pages18
JournalAsia-Pacific Journal of Accounting and Economics
Volume25
Issue number1-2
DOIs
StatePublished - 2018 Jan 10

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Reward
Ownership
Earnings growth
Institutional investors
Stock performance
Expectations management
Participation

Keywords

  • Earnings expectations
  • earnings growth
  • earnings management
  • expectations management
  • institutional investors

Cite this

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Perverse market rewards for meeting or beating earnings expectations* . / Oler, Mitchell; Pitre, Terence J.; Song, Chang Joon.

In: Asia-Pacific Journal of Accounting and Economics, Vol. 25, No. 1-2, 10.01.2018, p. 57-74.

Research output: Contribution to journalArticle

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