Varda Yaari

Has Regulation Changed the Market's Reward for Meeting Or Beating Expectations?

A firm meets or beats expectations when it reports earnings that are at or above the consensus analysts forecast. We argue that two types of firms MBE: strong firms who commit to future performance and signal future earnings by MBE, and weak firms who attempt to mimic strong firms by managing either expectations or earnings. Using a sample of 4,152 earnings announcements for firms that habitually MBE between 1999 and 2004, we find that the incidence of expectations (earnings) management decreased following the enactment of Regulation FD (Sarbanes Oxley). In addition, we find that the market reactions to MBE achieved through managing expectations declined significantly following the enactment of Regulation FD, but not to MBE achieved by managing earnings following the enactment of the Sarbanes-Oxley Act.

An Advanced Present Value Formula

At present, accounting textbooks miss a quick calculation of the present value of an annuity with variable payments. The current approach is to calculate the present value of each payment separately. In this paper, we present different ways to calculate the present value of such an annuity when the differences between successive payments are fixed. We show that the annuity can be broken into two sub-series whose present values are easily calculated, and we then apply this approach to revise the current formula of present value. Because a formula is time-saving and elegant, this paper is valuable to educators and practitioners.