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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27558
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| Title: | The Use of Advertising Activities to Meet Earnings Benchmarks: Evidence
from Monthly Data |
| Authors: | Cohen, Daniel
Mashruwala, Raj
Zach, Tzachi |
| Issue Date: | Aug-2007 |
| Series/Report no.: | Daniel A. Cohen-13 |
| Abstract: | Using a unique and comprehensive data set of monthly information on
advertising spending in media outlets, we examine whether managers
engage in real earnings management to meet quarterly financial reporting
benchmarks. We extend prior literature by: (1) examining quarterly as
opposed to annual earnings benchmarks and separating advertising from
other expenses, which allows us to incorporate advertising’s
unique characteristics; (2) exploring the possibility that managers
could either reduce or boost advertising to increase chances of meeting
an earnings benchmark; (3) investigating the timing, within a fiscal
quarter, of altered advertising spending; and (4) analyzing actual
activities as opposed to inferring them from reported expenses, which
could also be influenced by accrual choices. Our analysis suggests that
managers reduce their advertising spending to achieve the financial
reporting goals of avoiding losses, avoiding earnings decrease, and
meeting analysts’ forecasts. We find some evidence that
advertising spending increases during the third month of a fiscal
quarter. This increase is stronger for managers who have incentives to
meet earnings benchmarks and whose firms have higher margins. We find no
evidence of an increased tendency to alter advertising spending after
the Sarbanes-Oxley Act. |
| URI: | http://hdl.handle.net/2451/27558 |
| Appears in Collections: | Accounting Working Papers
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