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Is Revenue Management to Meet Earnings Benchmarks Informative?
Habětínek, Jan ; Novák, Jiří (advisor) ; Čech, František (referee)
We propose and empirically test a new hypothesis that managers rationally choose between specific channels of earnings management to meet earnings benchmarks. Prior research documents that managers are ready to interfere with the neutrality of financial reporting process to report earnings above zero, earnings above last year's earnings, and earnings above analysts' forecast. However, there is a controversy over whether this earnings management to meet or beat earnings benchmarks is intended to distort investors' view by delaying the disclosure of bad news or whether it is intended to communicate managers' private information about the firm's strong future performance. We argue that the credibility of the earnings management signal crucially depends on the cost of its imitation. As revenue management is more costly to imitate than cost management, we argue that managers who intend to send a credible signal about their firm's future performance likely boost revenues rather than depress costs. To test this prediction, we use a recently developed model of discretionary revenues that is arguably more powerful in detecting earnings management than traditional techniques. The empirical results are consistent with our predictions for the most important earnings benchmark - the consensus of analysts'...
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Revenue Management around Seasoned Equity Offerings
Habětínek, Jan ; Novák, Jiří (advisor) ; Džmuráňová, Hana (referee)
This bachelor thesis enhances existing research about unusual operating performance of firms that are subject to Seasoned Equity Offerings. It uses modern tools of estimation of earnings management by discretionary revenues measured as portion of account receivables that cannot be explained by revenues and credit policy. Therefore, it helps to discriminate between two existing explanations of the unusual operating performance, market timing and earnings management, with greater precision. Apart of finding evidence in favour of the earnings management theory, the results additionally, in contrast to previous research, suggest downward-oriented adjustment of revenues in the year before SEO and therefore provide evidence in favour of newly proposed "revenue buffer" hypothesis. Implicitly, combined with the past results, also a shift from dominance of expense management before SEO to dominance of revenue management at the time of SEO is suggested.
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