Title

An Examination of Earnings Surprises for Urban and Rural Firms

Publication Type

Journal Article

Publication Date

4-2014

Abstract

In this paper, we examine the association between firm location and management’s opportunistic financial reporting at earnings announcements. Because of investors’ preference for local stocks and the existence of large investment communities in urban areas, firms located in urban areas (i.e., urban firms) tend to have a higher level of visibility and attention. We predict that this tendency in turn motivates urban firms to opportunistically behave in an earnings surprises game. Consistent with our prediction, we find that (1) urban firms are more likely to report non-negative earnings surprises than rural firms; (2) urban firms are more likely to report non-GAAP earnings numbers; and (3) urban firms are more likely to make income-increasing adjustments to GAAP earnings to arrive at non-GAAP earnings than rural firms. In addition, we find that the market response to earnings surprises is consistent with investors perceiving urban firms’ opportunistic financial reporting.

Discipline

Accounting | Corporate Finance

Research Areas

Financial Performance Analysis

Publication

Korean Accounting Review [회계학연구]

Volume

39

Issue

2

First Page

77

Last Page

108

ISSN

1229-3288

Publisher

Korea Accounting Association [한국회계학회]

Comments

Presented at American Accounting Association (AAA) Annual Meeting 2008, Anaheim, CA

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