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Despite the importance of EPS forecasts as benchmarks, little is known about their denominator: shares outstanding forecasts. Because investing clients have limited demand for accurate share forecasts, we predict that analysts develop share forecasts strategically to facilitate EPS incentives. We divide earnings forecasts by EPS forecasts to infer analysts’ share forecasts and evaluate their properties. Analysts’ forecasts of shares outstanding are significantly less accurate than simple time-series models; however, these same forecasts actually improve EPS forecast accuracy. Additional analysis explains why: analysts use share forecasts to herd EPS toward the consensus. That is, share forecast errors often have the same sign as street earnings forecast errors, moving EPS closer to the consensus and to actual EPS, and significantly reducing EPS dispersion. Analysts also appear to use share forecasts to cater to management. Specifically, bias in share forecasts facilitates firms’ ability to meet or beat (“MB”) EPS benchmarks and is consistent with manager preferences (i.e., deflating EPS forecasts at short horizons and inflating at longer horizons). Much of the MB effect arises because analysts fail to incorporate predictable variation in shares outstanding, such as past repurchases. Interviews with sell-side analysts confirm that clients have limited demand for share forecasts, consistent with the inattention and strategic use of forecasts documented in our study.

Prior to a firm’s earnings announcement, the capital market receives earnings-relevant information from a wide array of sources. While prior research isolates specific incentives that influence the timeliness of particular disclosures, our understanding of how these forces combine to influence the aggregate timeliness of earnings information to the market is limited. In this study, I use daily analyst forecasts to examine the arrival of earnings information to the market and assess how its timeliness varies with the direction and magnitude of the earnings news. Despite managers’ career-driven incentives to leak good news and withhold bad news, I document that the flow of earnings information to the market is significantly more timely for bad news than for good news. This asymmetry, however, is reduced for more extreme earnings news. That is, as the magnitude of the earnings news increases, good news becomes more timely whereas bad news becomes less timely. Collectively, my results are most consistent with a scenario where managers face a tradeoff between current stock price implications and future reporting reputation benefits.

While prior work has studied public enforcement effectiveness, little is known about how the SEC selects targets for investigation. We hypothesize that case selection is driven by (i) the broad social objectives of the agency (“public message” hypothesis); and/or (ii) agency funding considerations and career concerns of enforcement staff (“cost of negligence” hypothesis). Using a new database of formal SEC investigations, we find evidence consistent with both hypotheses. Although both hypotheses play a role in case selection, the implications for case outcomes are contradictory. Investigations driven by the public message motive are more likely to result in formal resolution (i.e., public charges), whereas investigations driven by the cost of negligence motive are less likely to result in formal resolution. These findings help to shine a light on how SEC incentives shape case selection and impact enforcement effectiveness.

We document a growing disparity in earnings disclosure mechanisms. Firms are increasingly disclosing earnings announcements (EA) concurrently with the 10-K filing instead of first issuing a ‘stand-alone’ EA. Firm adoption of concurrent EA/10-Ks is associated with lower investor sophistication, greater impediments to producing timely and reliable earnings information, and greater industry-level concurrent reporting. Concurrent EA/10-Ks differ from stand-alone EAs in that investors anticipate more information in the EA, disclosures are preempted by industry peer EAs, the market reaction is muted even when controlling for EA timing, and post-earnings-announcement drift is greater.

Stock exchanges are important intermediaries in how firm information enters price. Trading halts are a key tool, often exercised at the exchanges’ discretion, to prevent extraordinary price volatility when new information arrives. However, the decision making behind the halt remains a “mystery” (WSJ, 2018). We investigate how exchanges use discretion and whether the discretion alters the effectiveness of the halts. We show halts reflect the preferences of listed firms rather than the stated exchange objectives (i.e., minimizing excess volatility and off-equilibrium trades). Furthermore, when exchanges exercise more discretion (unexplained by firm and information characteristics) the halts are less effective.

We show that the conventional disclosure strategy, in which a ‘stand-alone’ earnings announcement pre-empts the SEC-mandated filing (e.g. 10-K), has been steadily disappearing over time and is instead being replaced by a concurrent earnings announcement, in which the earnings announcement and the 10-K filing are released on the same day. We document that the prevalence of concurrent earnings announcements has increased significantly over time. Importantly for investors, we find that concurrent earnings announcements are less timely and less decision useful than stand-alone earnings announcements. Specifically, we document that concurrent earnings announcements are associated with attenuated market reactions to and greater anticipation of earnings news by investors compared to stand-alone earnings announcements. Finally, we find that firms with greater impediments to producing timely earnings information are more likely to have switched from a stand-alone to a concurrent strategy. Collectively, we document a distinct divide in the marketplace, with a growing number of firms switching to the less decision useful practice of concurrent earnings announcements, relative to stand-alone earnings announcements.

Accruals are fundamental to financial reporting and are the underlying innovation of accounting. Despite this, accounting research has provided little understanding of how economic forces affect a firm’s level of accruals and limited guidance for forming expectations of accruals based on ex ante firm characteristics. We consider accruals as a form of investment and examine whether theoretical predictions from a real options-based investment framework provide insight into the relation between accruals and the ex ante expected volatility faced by the firm. Specifically, the theory predicts that higher volatility dampens investment because firms prefer to ‘wait and see’ instead of investing immediately. Consistent with this theory, we document a robust negative relation between year-ahead net working capital accruals and expected volatility. We also predict and find that the negative association between year-ahead net working capital accruals and expected volatility is less pronounced for distressed firms and more pronounced for firms with a longer operating cycle, and that current asset accruals are more sensitive to volatility than current liability accruals. Finally, we find that the residuals from an investment-based expected accrual model outperform those from the widely-used performance-adjusted modified Jones model in identifying companies that just meet or beat analysts’ earnings forecasts. Collectively, our findings suggest that the investment perspective of accruals, and in particular the real options-based investment framework, provide useful insights for forming expectations of accruals.

This study documents that the market places more reliance on earnings announcements with a completed audit than on earnings announcements with an incomplete audit. The PCAOB’s Auditing Standards No. 2 and 3 (AS2/3) resulted in the majority of firms issuing annual earnings announcements prior to audit completion. Prior research documents an increase in earnings revisions around the implementation of AS2/3, a negative market reaction to earnings revisions, and lower investor reliance on earnings announcements that foreshadow an impending earnings revision. We argue that the issuance of earnings announcements with a completed versus an incomplete audit has a more fundamental impact on the market. Specifically, earnings announcements with an incomplete audit lead investors to perceive lower financial reporting quality and to place less reliance on the earnings announcement even in the absence of an impending or ex post earnings revision. Using both difference-in-difference and cross-sectional analyses, we find that earnings announcements with a completed audit are associated with a larger market reaction than earnings announcements with an incomplete audit. This differential market reliance on earnings announcements with a completed versus an incomplete audit persists after the implementation of AS2/3 into a more steady-state regulatory environment from 2007 through 2013.