| Summary: | 碩士 === 國立中正大學 === 會計學研究所 === 99 === This study examines whether investors react to real and accounting earnings management activities differently in the pre-mandatory earnings forecast and the post-mandatory earnings forecast regimes after public firms were no longer required to issue earnings forecasts since January 2005. Our empirical results indicate that after public firms were waived the requirement of mandatory earnings forecasts, market participants react negatively to real earnings management activities irrespective of firms reporting earnings forecast. On the other hand, investors react positively to accounting earnings management activities for firms not issuing earnings forecasts, while the market reaction to accounting earnings management behaviors is insignificant for firms with voluntary earnings forecasts. We also find significant negative differences between the market reaction to accounting earnings management activities for firms with earnings forecasts and that for their counterparts.
Moreover, levels of investors’ sophistication may result in different market reactions to earnings management behaviors. Accordingly, we conduct a more focused analysis by investigating how sophisticated and unsophisticated investors react to real and accounting earnings management activities differently for firms with earnings forecasts in the two regimes. The results document that sophisticated investors react to real earnings management behaviors more positively, although insignificant, relative to their counterparts. In addition, we find that sophisticated investors react to accounting earnings management activities more negatively as compared to their counterparts, after the waiver of mandatory earnings forecasts. The combined evidence suggests that sophisticated investors are more “experienced” than their counterparts in recognizing the meanings behind accounting numbers. Their negative market reaction provides further support for the notions that accounting earnings management is perceived “unfavorable,” and that voluntary earnings forecasts are considered to increase managerial discretion.
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