סמינר במימון חשבונאות

Oded Rozenbaum, The George Washington University

Numerous studies classify firms that meet or narrowly beat analysts’ expectations as suspects of earnings manipulation.

It is likely that not all firms meet or narrowly beat analysts’ expectations by manipulating earnings. Using the textual content of conference calls,

we examine whether investors can identify the subset of firms that meet or narrowly beat analysts’ expectations by managing discretionary expenses.

We find that increased mentions of discretionary expenses in the Q&A session of conference calls is associated with lower market reaction and downward

revisions to analysts’ earnings estimates, but only for firms that meet or just beat analysts’ expectations.

We further find a positive association between the number of mentions of discretionary expenses in the Q&A session of conference calls and the future increase

in those expenses for firms that meet or narrowly beat analysts’ expectations. These results are stronger for firms with high analyst coverage and low abnormal

discretionary expenses. A similar examination of management presentation sessions in conference calls does not yield significant results.

Our results suggest that investors identify when firms use discretionary expenses to meet or narrowly beat analysts’ expectations,

inquire about those expenses at conference calls, and update their expectations accordingly.