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Earning management 3 (Graham et al 2005 (resultat/slutsatser (managers…
Earning management 3
Graham et al 2005
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resultat/slutsatser
managers would rather take economic actions that could have long-term consequences than make within- GAAP accounting choices to manage earnings
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managers make voluntary disclosures to reduce information risk and boost stock price but at the same time trying to avoid setting disclosure precedents that will be difficult to maintain
managers believes that earnings, not cash flows are the key metric considered by outsiders
the two most important earning benchmarks are quarterly earnings last year (same quarter) and analysts consensus estimate
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managers describes a trade-off between short term need to deliver earnings and long-term objective of making value-maximizing investment decisions
executives believes that hitting earning benchmarks builds credibility with the market and helps to maintain or increase stock prize
large reaction on the stock market to small earning benchmark misses can be explained as evidence that the markets expects earning management and if a company is unable to find the needed money to hit benchmark the problem might be worse than the small gap would entail
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