Earnings Disappointments and Strategic Profit Allocations in Segment Reporting.
详细信息
文摘
I examine whether firms strategically allocate segment-level profits when reporting disappointing firm-level earnings. Prior research documents managers' use of voluntary disclosures to mitigate fallout from earnings disappointments,though little work has addressed whether managers exercise discretion in classifying the components of disappointing earnings to temper outsider reactions to the news. I hypothesize and find that firms reporting annual earnings just below the analyst consensus forecast shift profits (a) toward segments in which profit rates are relatively more informative for firm value and (b) away from "scapegoat" segments that report losses or operate in industries affected by bad news. In addition,I find that evidence of strategic profit allocations across segments is generally more pronounced for high growth firms,firms with limited abilities to manipulate accruals,firms without pre-existing "un-allocated expense" items,and firms in which the incremental value relevance of segment data is high.