Abstract
The Securities and Exchange Commission requires publicly held US corporations to disclose all information, whether it is positive or negative, that might be relevant to an investor’s decision to buy, sell, or hold a company’s securities. The decisions made by corporate managers to disclose such information can significantly affect the judgments and decisions of investors. This paper examines academic accounting research on corporate managers’ voluntary disclosures of earnings forecasts and non-GAAP earnings measures. Much of the evidence from this research indicates that some managers engage in opportunistic disclosure behavior that often benefits one group (managers and shareholders) at the expense of other groups (often other investors). The paper concludes by discussing the ethical implications of this behavior.
Similar content being viewed by others
References
Aboody, D. and R. Kasznik: 2000, ‹CEO Stock Option Awards and the Timing of Voluntary Corporate Disclosures,’ Journal of Accounting and Economics 29, 73–100
Ajinkya, B.B. and M.J. Gift: 1984, ‹Corporate Managers’ Earnings Forecasts and Symmetrical Adjustments of Market Expectations,’ Journal of Accounting Research 22(2), 425–444
Bartov, E., D. Givoly and C. Hayn: 2002, ‹The Rewards to Meeting or Beating Earnings Expectations’, Journal of Accounting and Economics 33(2), 173–204
Bhattacharya, N., E. Black, T. Christensen and K. Allee: 2003a, ‹Large and Small Investors’ Differential Responses to Pro Forma Earnings Announcements Based on the Relative Magnitude and Relative Emphasis Managers Place on Pro Forma and GAAP Earnings’, Working Paper, Brigham Young University
Bhattacharya, N., E. Black, T. Christensen and C. Larson: 2003b, ‹Assessing the Relative Informativeness and Permanence of Pro Forma Earnings and GAAP Operating Earnings’, Journal of Accounting and Economics 36(1–3), 285–319
Bowen, R., A. Davis and D. Matsumoto: 2004, ‹Emphasis on Pro Forma Versus GAAP Earnings in Quarterly Press Releases: Determinants, SEC Intervention, and Market Reactions’, Working Paper, University of Washington
Burgstahler, D. and M. Eames: 2006, ‹Management of Earnings and Analysts’ Forecasts to Achieve Zero and Small Positive Earnings Surprises, Journal of Business Finance and Accounting 33(5–6), 633–652
Choi, J.H. and D.A. Ziebart: 2004, ‹Management Earnings Forecasts and the Market’s Reaction to Predicted Bias in the Forecast’, Asia-Pacific Journal of Accounting and Economics 11(2), 167–192
Donaldson, T. and Lee E. Preston: 1995, ‹The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications’, The Academy of Management Review 20(1), 65–91
Entwistle, G., G. Feltham and C. Mbagwu: 2006, ‹Misleading Disclosure of Pro Forma Earnings: An Empirical Examination’, Journal of Business Ethics 69, 355–372
Frederickson, J. and J. Miller: 2004, ‹The Effects of Pro Forma Earnings Disclosures on Analysts’ and Nonprofessional Investors’ Equity Valuation Judgments’, The Accounting Review 79(3), 667–686
Gibbons, M., A. Richardson and J. Waterhouse: 1990, ‹The Management of Corporate Financial Disclosure: Opportunism, Ritualism, Policies, and Processes’, Journal of Accounting Research 40(1), 121–143
Graham, J., C. Harvey and S. Rajgopal: 2005, `The Economic Implications of Corporate Financial Reporting', Journal of Accounting and Economics 40, 3–73
Hutton, A.P.: 2005, ‹Determinants of Managerial Earnings Guidance Prior to Regulation Fair Disclosure and Bias in Analysts’ Earnings Forecasts’, Contemporary Accounting Research 22(4), 867–914
Kasznik, R. and M. McNichols: 2002, ‹Does Meeting Earnings Expectations Matter? Evidence from Analyst Forecast Revisions and Share Prices, Journal of Accounting Research 40(3), 727–760
Ke, B. and Y. Yu: 2006, ‹The Effect of Issuing Biased Earnings Forecasts on Analysts’ Access to Management and Survival’, Journal of Accounting Research 44, 965–1000
King, R., G. Pownall and G. Waymire: 1990, ‹Expectations Adjustments via Timely Management Forecasts: Review, Synthesis, and Suggestions for Future Research’, Journal of Accounting Literature 9, 113–144
Libby, R. and H. Tan: 1999, ‹Analysts’ Reactions to Warnings of Negative Earnings Surprises’, Journal of Accounting Research 37(2), 415–436
Lougee, B. and C. Marquardt: 2004, ‹Earnings Informativeness and Strategic Disclosure: An Empirical Examination of “Pro Forma” Earnings’, The Accounting Review 79, 769–796
Matsumoto, D.: 2002. ‹Management’s Incentives to Avoid Negative Earnings Surprises’, The Accounting Review 77(3), 483–514
Miller, J.: 2006, ‹Unintended Effects of Preannouncements on Investor Reactions to Earnings News’, Contemporary Accounting Research 23(4), 1073–1103
Richardson, S., S.H. Teoh and P.D. Wysocki: 2004, ‹The Walk-down to Beatable Analyst Forecasts: The Role of Equity Issuance and Insider Trading Incentives’, Contemporary Accounting Research 21(4), 885–924
Rogers, J.L. and P.C. Stocken: 2005, ‹Credibility of Management Forecasts’, The Accounting Review 80(4), 1233–1260
Skinner, D.: 1994, ‹Why Firms Voluntarily Disclose Bad News’, Journal of Accounting Research 32, 38–60
Skinner, D. and R. Sloan: 2002, ‹Earnings Surprises, Growth Expectations, and Stock Returns or Don’t Let an Earnings Torpedo Sink Your Portfolio’, Review of Accounting Studies 7(2–3), 289–312
Tan, H., R. Libby and J.E. Hunton: 2002, ‹Analysts’ Reactions to Earnings Preannouncement Strategies’, Journal of Accounting Research 40(1), 223–246
Zhang, H. and L. Zheng: 2005, ‹Determinants and Valuation Impact of Reconciling Pro Forma Earnings to GAAP Earnings’, Working Paper, University of Hong Kong
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Miller, J.S. Opportunistic Disclosures of Earnings Forecasts and Non-GAAP Earnings Measures. J Bus Ethics 89 (Suppl 1), 3–10 (2009). https://doi.org/10.1007/s10551-008-9903-0
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10551-008-9903-0