Performance Expectations Management And Earnings Announcement Premiums

The traditional theory of earnings surprises has been concerned by financial academics,and relevant domestic and international studies have proved the existence of earnings surprises.With the development of the capital market,the earnings forecast of securities analysts is also gradually becoming a substitute for earnings expectations in our capital market.When the performance of listed companies exceeds analysts’ forecasts,the realization of positive earnings surprises is conducive to driving up stock prices and forming earnings announcement premiums.Listed companies will adopt earnings management and expectation management to achieve positive surprises.Expectations management refers to the release of negative news about a company’s earnings by the management of a listed company to securities analysts prior to the earnings announcement date,leading analysts to lower their earnings forecasts.Expectations management can help listed companies to achieve the analysts’ performance forecasts for listed companies more easily.While there is a large literature on earnings management,this paper focuses on the existence of expectations management in the Chinese capital market and the characteristics of companies with stronger motivation to engage in expectations management.The empirical process consists of three main parts: firstly,analyze the characteristics of listed companies that conduct expectations management,and conduct multiple regression through logit model;secondly,construct the expectations management tendency proxy EMI,according to the results of logit multiple regression model,the regression coefficient is used as the weight of each variable in the composite index,after that,according to the size of the expected management tendency EMI,the combination analysis method is used to study whether the listed companies with high expected management tendency have higher earnings announcement premium in the earnings announcement month.;finally,we examine whether the returns of Low-High asset portfolios of listed companies in the month of earnings announcement and the two preceding months are in a "V" shape.The conclusions of this paper were obtained from the empirical study.Firstly,listed companies with higher analyst attention,higher percentage of institutional holders,higher operating income growth rate,and higher P/E ratio have higher propensity to manage expectations.Secondly,listed companies with high propensity to manage expectations are able to obtain higher returns in the earnings announcement month and realize earnings announcement premium.Finally,listed companies that choose to manage expectations lower analysts’ expectations prior to the release of annual financial reports,causing the stock price to fall in the month prior to the earnings announcement month,and the monthly return on the Low-High asset portfolio of listed companies in the earnings announcement month and the two months prior to the earnings announcement month shows a "V" pattern of falling and then rising.The latter two points demonstrate the existence of expectations management in the Chinese capital market.This paper tries to combine expectations management and earnings announcement premium to discover the existence of the implicit behavior of expectations management in the Chinese A-share market,analyze the characteristics of listed companies with high tendency of expectations management,and provide a new perspective for investors to analyze listed companies.