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Perverse market rewards for meeting or beating earnings expectations

Author

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  • Mitchell Oler
  • Terence J. Pitre
  • Chang Joon Song

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.

Suggested Citation

  • Mitchell Oler & Terence J. Pitre & Chang Joon Song, 2018. "Perverse market rewards for meeting or beating earnings expectations," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 25(1-2), pages 57-74, January.
    • Handle: RePEc:taf:raaexx:v:25:y:2018:i:1-2:p:57-74
    DOI: 10.1080/16081625.2016.1263158
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    Cited by:

    1. Qazi Ghulam Mustafa Qureshi & Yves Mard & François Aubert, 2022. "Effects of earnings management on firms' marketadjusted return," Post-Print hal-04266643, HAL.

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