Stock Price Reaction to Evidence of Earnings Management: Implications for Supplementary Financial Disclosure |
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Authors: | William R Baber Shuping Chen Sok-Hyon Kang |
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Institution: | (1) The George Washington University School of Business, 2201 G Street NW, Suite 601, NW Washington, DC, 20052, USA;(2) University of Washington Business School, WA, Seattle, USA |
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Abstract: | We condition security price reactions to quarterly earnings announcements on whether firms disclose supplementary balance
sheet and/or cashflow information that can be used to estimate the consequences of earnings management. Disclosure of supplementary
information is voluntary, and thus, we consider the possibility that firms that disclose balance sheet and/or cashflow information
differ systematically from firms that do not disclose. Results indicate that investors discount evidence of earnings management
at the disclosure date when supplementary information is disclosed. Such results indicate more informed earnings interpretations
of quarterly earnings when firms provide balance sheet and/or cashflow information concurrently.
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Keywords: | Earnings management Financial disclosure policy |
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