Seminario académico de Finanzas y Contabilidad

Título: Earnings management, financial report readability, and valuation uncertainty

Fecha: 05 de septiembre, 13:00 horas, sala P 302, Facultad de Economía y Negocios

Expositor: Matías Braun, PhD en Economía de la Universidad de Harvard, profesor titular e investigador del ESE Business School de la Universidad de los Andes.

Based on full 10K reports we analyze the relationship between the likelihood of having managed earnings, readability, and market reaction. We find that post-filing valuation uncertainty and market mispricing are lower for firms that barely meet or just beat last years’ earnings, and for those that write more readable reports. These two effects are complementary: readability has a larger impact on reducing uncertainty and mispricing when firms are more likely to have managed earnings. This result is consistent with a view where the management, that has superior information, attempts to reduce the volatility and mispricing induced by overreacting investors by both avoiding earnings surprises and providing better qualitative guidance for future performance.