From CXO Advisory Group:
Do companies systematically manage earnings in attempts to smooth out the bumps? If so, can investors detect and exploit such gaming? In their January 2008 paper entitled "Reconciling the Market’s Underreaction to Earnings Changes and Overreaction to (Abnormal) Accruals: An Earnings Management Explanation", Henock Louis and Amy Sun investigate whether earnings management accounts for anomalous market reactions to earnings and accruals surprises. Specifically, they test whether firms with accelerating (deteriorating) earnings systematically manage earnings downward to create reserves (upward to avoid reporting losses). Using firm financial data and associated stock prices over the period 1988-2005, they conclude that:>>>MORE
