Earning investor trust: The role of past earnings management
Journal
Journal of Business Finance & Accounting
ISSN
0306-686X
Type
journal article
Date Issued
2021
Author(s)
Abstract
Does earnings management, even though legal, hinder investor trust in reported earnings? Or do investors regard earnings management as a way for firms to convey private information, or simply as a neutral feature of financial reporting? We find that past abstinence from earnings management increases investor responses to future earnings surprises. Importantly, this effect occurs in industries where investor trust has recently been violated, and where managers would in the past have had incentives and opportunities to misrepresent earnings. Overall, investors seem to interpret the extent to which management resists temptations for misreporting as a “litmus test” of trustworthiness.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Volume
48
Number
1-2
Start page
269
End page
307
Official URL
Subject(s)
Division(s)
Eprints ID
265475