Accrual usage to manage earnings toward financial analysts' forecasts

Earnings management and internal mechanisms of corporate governance: Empirical evidence from Chilean firms

“…The result of this process is the so-called earnings management or modification of accounting earnings to make a positive impression about managers' performance instead of conveying reliable information to markets. These decisions cover a wide range such as the choice of accounting methods (Moses, 1987), inventories valuation criteria (Niehaus, 1989), extraordinary expenses and incomes (Beattie et al, 1994), R&D expenditures (Bange and DeBondt, 1998) or accruals (Bannister and Newman, 1996; DeFond and Park, 1997). One of the most outstanding of these procedures are accruals and literature has paid a special attention to them in recent years (Jones, 1991;DeFond and Subramanyan, 1998;Erikson and Wang, 1999;Healy and Wahlen, 1999).…”

Experience, Information Asymmetry, and Rational Forecast Bias

“…As suggested by Bannister and Newman (1996) and Dechow et al (1998), companies that consistently manage their earnings are easier to forecast. We include Accruals (in $ millions) to control for the possibility that earnings are easier to forecast for companies that manage their earnings, resulting in less information "bought" from the company.…”

Analysts’ Forecast Accuracy in Germany: The Effect of Different Accounting Principles and Changes of Accounting Principles

“…Furthermore, management actions may influence forecast accuracy directly or indirectly. On the one hand, several studies indicate the management of earnings and the guidance of forecasts towards the consensus (Bannister and Newman 1996;Degeorge, Patel, and Zeckhauser 1999;Matsumoto 2002;Abarbanell and Lehavy 2003;Hutton 2005;Burgstahler and Eames 2006; for Germany see Bessler and Stanzel 2007). On the other hand, through issuing its own forecasts, management tries to influence analysts' expectations (e.g.…”

“…First, more choices and less discretion could be aligned with higher forecast accuracy, because it may improve the ability of companies to manage earnings towards the analysts' earnings forecasts. Several studies indicate such earnings management behavior (Bannister and Newman 1996;Degeorge, Patel, and Zeckhauser 1999;Matsumoto 2002;Abarbanell and Lehavy 2003). In contrast, choices increase complexity and uncertainty of analysts (Ashbaugh and Pincus 2001) and therefore impair forecast accuracy (Hope 2004).…”