"Ex Ante" Incentives for Earnings Management and the Informativeness of Earnings
This study examines the relation between "ex ante" incentives of insurance managers to engage in earnings management to meet regulatory standards and the informativeness of earnings. This study extends prior research by simultaneously examining the effects of earnings management and uncertainty about earnings as suggested by Collins and DeAngelo (1990) and Imhoff and Lobo (1992). Results from a sample of 375 quarterly earnings announcements of 41 property and liability insurers during the period 1989 to 1992 support the hypothesis that when managers' incentives for earnings management are high, earnings announcements are less informative to investors (even after controlling for uncertainty associated with exposure to large-scale catastrophes). Robustness tests suggest that our results are not attributable to firm size, time period effects, firm effects, accounting estimation error, or financial distress risk. These results are consistent with investors using publicly available information to predict P-L insurance managers' "ex ante" incentives to manage earnings to meet regulatory standards, and that they use this information in forming their beliefs about earnings quality. Copyright Blackwell Publishers Ltd 1999.
Year of publication: |
1999-09
|
---|---|
Authors: | Christensen, Theodore E. ; Hoyt, Robert E. ; Paterson, Jeffrey S. |
Published in: |
Journal of Business Finance & Accounting. - Wiley Blackwell, ISSN 0306-686X. - Vol. 26.1999-09, 7&8, p. 807-832
|
Publisher: |
Wiley Blackwell |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Ex Ante Incentives for Earnings Management and the Informativeness of Earnings
Christensen, Theodore E., (1999)
-
Gaver, Jennifer J., (2007)
-
Paterson, Jeffrey S., (2011)
- More ...