Accounting Flexibility and Managers’ Forecast Behavior Prior to Seasoned Equity Offerings

This study examines the effect of accounting flexibility on managers’ forecasting behavior prior to seasoned equity offerings(SEO). While SEO firms have strong incentives to convey optimistic information to boost the pre-SEO stock price, they also face enhanced litigation risk arising from SEO-relat...

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Main Author: KIM, Jae Bum
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2012
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Online Access:https://ink.library.smu.edu.sg/soa_research/798
https://ink.library.smu.edu.sg/context/soa_research/article/1797/viewcontent/SSRN_id1754592.pdf
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Institution: Singapore Management University
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spelling sg-smu-ink.soa_research-17972018-07-13T06:09:01Z Accounting Flexibility and Managers’ Forecast Behavior Prior to Seasoned Equity Offerings KIM, Jae Bum This study examines the effect of accounting flexibility on managers’ forecasting behavior prior to seasoned equity offerings(SEO). While SEO firms have strong incentives to convey optimistic information to boost the pre-SEO stock price, they also face enhanced litigation risk arising from SEO-related regulations. Thus, I hypothesize that managers of SEO firms will release optimistic forecasts prior to an SEO only if they have the accounting flexibility to manage subsequent reported earnings to meet or exceed their forecasts. I find that managers with greater accounting flexibility are more likely to issue a forecast prior to the SEO and their forecasts are more optimistic and more specific. Further, I find that accounting flexibility has no effect on managers’ forecasting behavior either for non-SEO control firms or for non-SEO periods. My results suggest that, when managers face a tension between incentives to report optimistically and high litigation risk, accounting flexibility is an important factor that determines their forecasting behavior. 2012-01-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/soa_research/798 https://ink.library.smu.edu.sg/context/soa_research/article/1797/viewcontent/SSRN_id1754592.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Accounting Corporate Finance
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Accounting
Corporate Finance
spellingShingle Accounting
Corporate Finance
KIM, Jae Bum
Accounting Flexibility and Managers’ Forecast Behavior Prior to Seasoned Equity Offerings
description This study examines the effect of accounting flexibility on managers’ forecasting behavior prior to seasoned equity offerings(SEO). While SEO firms have strong incentives to convey optimistic information to boost the pre-SEO stock price, they also face enhanced litigation risk arising from SEO-related regulations. Thus, I hypothesize that managers of SEO firms will release optimistic forecasts prior to an SEO only if they have the accounting flexibility to manage subsequent reported earnings to meet or exceed their forecasts. I find that managers with greater accounting flexibility are more likely to issue a forecast prior to the SEO and their forecasts are more optimistic and more specific. Further, I find that accounting flexibility has no effect on managers’ forecasting behavior either for non-SEO control firms or for non-SEO periods. My results suggest that, when managers face a tension between incentives to report optimistically and high litigation risk, accounting flexibility is an important factor that determines their forecasting behavior.
format text
author KIM, Jae Bum
author_facet KIM, Jae Bum
author_sort KIM, Jae Bum
title Accounting Flexibility and Managers’ Forecast Behavior Prior to Seasoned Equity Offerings
title_short Accounting Flexibility and Managers’ Forecast Behavior Prior to Seasoned Equity Offerings
title_full Accounting Flexibility and Managers’ Forecast Behavior Prior to Seasoned Equity Offerings
title_fullStr Accounting Flexibility and Managers’ Forecast Behavior Prior to Seasoned Equity Offerings
title_full_unstemmed Accounting Flexibility and Managers’ Forecast Behavior Prior to Seasoned Equity Offerings
title_sort accounting flexibility and managers’ forecast behavior prior to seasoned equity offerings
publisher Institutional Knowledge at Singapore Management University
publishDate 2012
url https://ink.library.smu.edu.sg/soa_research/798
https://ink.library.smu.edu.sg/context/soa_research/article/1797/viewcontent/SSRN_id1754592.pdf
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