IDEAS home Printed from https://ideas.repec.org/a/bla/jbfnac/v26y1999i7-8p807-832.html
   My bibliography  Save this article

Ex Ante Incentives for Earnings Management and the Informativeness of Earnings

Author

Listed:
  • Theodore E. Christensen
  • Robert E. Hoyt
  • Jeffrey S. Paterson

Abstract

This study examines the relation between ex ante incentives of insurance managers to engage in earnings management to meet regulatory standards and the informativeness of earnings. This study extends prior research by simultaneously examining the effects of earnings management and uncertainty about earnings as suggested by Collins and DeAngelo (1990) and Imhoff and Lobo (1992). Results from a sample of 375 quarterly earnings announcements of 41 property and liability insurers during the period 1989 to 1992 support the hypothesis that when managers' incentives for earnings management are high, earnings announcements are less informative to investors (even after controlling for uncertainty associated with exposure to large‐scale catastrophes). Robustness tests suggest that our results are not attributable to firm size, time period effects, firm effects, accounting estimation error, or financial distress risk. These results are consistent with investors using publicly available information to predict P‐L insurance managers' ex ante incentives to manage earnings to meet regulatory standards, and that they use this information in forming their beliefs about earnings quality.

Suggested Citation

  • Theodore E. Christensen & Robert E. Hoyt & Jeffrey S. Paterson, 1999. "Ex Ante Incentives for Earnings Management and the Informativeness of Earnings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(7‐8), pages 807-832, September.
    • Handle: RePEc:bla:jbfnac:v:26:y:1999:i:7-8:p:807-832
    DOI: 10.1111/1468-5957.00276
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1468-5957.00276
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1468-5957.00276?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hervé Stolowy & Gaetan Breton, 2000. "A Framework for the Classification of Accounts Manipulations," Working Papers hal-00597249, HAL.
    2. Sattar A. Mansi & William F. Maxwell & Darius P. Miller, 2004. "Does Auditor Quality and Tenure Matter to Investors? Evidence from the Bond Market," Journal of Accounting Research, Wiley Blackwell, vol. 42(4), pages 755-793, September.
    3. Theodore E. Christensen & Jennifer J. Gaver & Pamela S. Stuerke, 2005. "The Relation Between Investor Uncertainty and Market Reactions to Earnings Announcements: Evidence from the Property‐Casualty Insurance Industry in the USA," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(1‐2), pages 1-29, January.
    4. Carol A. Marquardt & Christine I. Wiedman, 2004. "The Effect of Earnings Management on the Value Relevance of Accounting Information," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(3‐4), pages 297-332, April.
    5. Andrew B. Jackson & Chao Li & Richard D. Morris, 2020. "Earnings Co‐movements and the Informativeness of Earnings," Abacus, Accounting Foundation, University of Sydney, vol. 56(3), pages 295-319, September.
    6. Theodore E. Christensen & Toni Q. Smith & Pamela S. Stuerke, 2004. "Public Predisclosure Information, Firm Size, Analyst Following, and Market Reactions to Earnings Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(7‐8), pages 951-984, September.
    7. Theodore E. Christensen & Toni Q. Smith & Pamela S. Stuerke, 2004. "Public Predisclosure Information, Firm Size, Analyst Following, and Market Reactions to Earnings Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(7-8), pages 951-984.
    8. Carol A. Marquardt & Christine I. Wiedman, 2004. "The Effect of Earnings Management on the Value Relevance of Accounting Information," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(3-4), pages 297-332.
    9. Wijayana, Singgih & Gray, Sidney J., 2018. "Capital market consequences of cultural influences on earnings: The case of cross-listed firms in the U.S. stock market," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 134-147.
    10. Chou, Julia & Zaiats, Nataliya & Zhang, Bohui, 2014. "Does auditor choice matter to foreign investors? Evidence from foreign mutual funds worldwide," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 1-20.
    11. Sanan Mukhtarov & Martijn Schoute & Jacco L. Wielhouwer, 2022. "The information content of the Solvency II ratio relative to earnings," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(1), pages 237-266, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jbfnac:v:26:y:1999:i:7-8:p:807-832. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.