Earnings Management

Research by the HKUST’s Charles Hsu shows that disclosures of non-GAAP earnings numbers are associated with a greater risk of stock price crashes. Working with international collaborators, Hsu found that non-GAAP disclosures enable managers to divert investors’ attention from bad news included in GAAP earnings. This mechanism, which is substitutive to ... Read More

Financial analysts are crucial information intermediaries in capital markets. Their consensus earnings estimates are widely used to assess firm performance. Given the market influence of financial analysts, managers have an incentive to issue earnings guidance to help analysts update their earnings expectations. Firms commonly issue earnings guidance at the ... Read More

“Fair value” is a gold standard in valuation, but there is no consensus on its usefulness in other areas, such as evaluating management performance. HKUST’s Mingyi Hung and her colleagues settle this dispute in important new work, contending that fair value accounting may actually be unhelpful when it comes to contracting. This finding is particularly ... Read More

An earnings announcement – a public statement of a company’s profitability, usually issued on a quarterly basis – provides useful information to assess peer firms’ expected cash flows, as well as the uncertainty regarding their expected cash flows. While there is a large body of research on whether there are intra-industry information transfers around ... Read More

Short sellers have been known to uncover companies that engage in financial. Indeed, several activist short sellers like Muddy Waters Research and Citron Research make a name for themselves by proactively targeting fraudsters, bringing their misconducts to light, and profiting from their price decline. Not surprisingly, managers should consider the cost and ... Read More