The Relationship Between Accruals and Investors' Perceptions of Earnings Forecast Error

Document Type : Original Article

Authors

• Mohammad Reza Razdar
• Jafar Ahmadpour

Department of Accounting, Qaenat Branch, Islamic Azad University, Qaenat, Iran

10.22067/ijaaf.v3i2.88630

Abstract

This study aims to investigate the relationship between accruals and investors' perceptual management.  The study's statistical population includes all firms listed on the Tehran Stock Exchange from 2011 to 2017. After reviewing the firms and systematically deleting them, 95 firms were selected for the study. The Findings show a positive and significant relationship between accruals and investors' perceptions (earnings forecasting error). This study attempts to state that if managers face limitations in the management of accruals, they report aggressive forecast earnings as a complementary approach to investor perception management and accounting earnings containing information content. Business management can manage investors' beliefs by managing accruals.

Keywords

• Accruals Management
• Investors' Perceptions
• Earnings Forecast Error

---

References

Ajinkya, B. B., S. Bhojraj, and P. Sengupta. (2005). The Association between Outside Directors, Institutional Investors and the Properties of Management Earnings Forecasts. Journal of Accounting Research, 43: 343-376.

Bartov, E., Givoli, D. and Hayn, C. (2002). The rewards to meeting or beating earnings expectations. Journal of Accounting and Economics, Vol.33: 173-204.

Bloomfield, R.J. (2002). The incomplete revelation hypothesis and financial reporting. Accounting Horizons, Vol.16(3): 233-243.

Barry, C.B., and S.J. Brown. (1985). Differential information and security market equilibrium. Journal of Financial and Quantitative Analysis, 20:407–422.

Black, Ervin L. and Christensen, Theodore E. and Joo, T. Taylor and Schmardebeck, Roy. (2014). The Relation between Earnings Management and Pro Forma Reporting. Available at SSRN:http://ssrn.com/abstract=2259379 or http://dx.doi.org/10.2139/ssrn.2259379.

Ciftci, M. and Salama, F. (2017). Stickiness in Costs and Voluntary Disclosures: Evidence from Management Earnings Forecasts. Journal of Management Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3065164.

Coller, M., and T. L. Yohn. (1997). Management Forecasts and Information Asymmetry: An Examination of Bid-Ask Spreads. Journal of Accounting Research, 35:181-191.

Das, S., Kim, K. and Patro S. (2011). An Analysis of Managerial Use and Market Consequences of Earnings Management and Expectation Management. AAA, Financial Accounting and Reporting Section (FARS) Paper.

Dechow P.M., R.G.Sloan, and A.P.Sweeney. (1995). Detevting of earnings management. Journal of accounting review, Vol. 70, no. 2, April, PP:193-225.

Dutta, S. and Gigler, F. (2002). The effect of earnings forecasts on earnings management. Journal of accounting Research, Vol,40:631-655.

Elshafie, E. Yen, A.R., and Yu, M. (2010). The association between pro forma earnings and earnings management, Review of Accounting and Finance, Vol, 9(2):139-155

Garcia-Meca E. and Sanchez-Ballesta J. P. (2011). Ownership structure and forecast accuracy in Spain. Journal of International Accounting, Auditing and Taxation, 20, 73-82.

Healy, P.M., A.P. Hutton, and K.G. Palepu. (1999). Stock performance and intermediation changes surrounding sustained increases in disclosure. Contemporary Accounting Research, 16:485-520

Huang, K. (2020). Management Forecast Errors and Corporate Investment Efficiency. Journal of Contemporary Accounting & Economics, Available online. In Press, Journal Pre-proof. https://doi.org/10.1016/j.jcae.2020.100208.

Lennox, C., and C. W. Park. (2006). The informativeness of earnings and management’s issuance of earnings forecasts. Journal of Accounting and Economics, 42:439–458.

Mehrani, S. Kamyabi, Y. and Qayuor, F. (2017). Investigating the effect of earnings quality indicators on the strength of financial helplessness prediction models. Accounting and auditing reviews, 24(1), 103-126.

Moghimi, F. (2019). Investigating the Relationship between Earnings Management and Accuracy of Earnings Forecasting by Management in Firms Accepted in Tehran Stock Exchange. 17th Iranian National Accounting Conference, Qom. Farabi Campus, University of Tehran.

Nikolaev, V. (2018). Identifying Accounting Quality. University of Chicago Booth School of Business, Working Paper, SSRN.com.