Earnings Thresholds and Market Responses



Degeorge, Patel and Zeckhauser (1999) show that companies manage their earnings to meet or exceed three earnings targets: zero earnings, earnings reported four quarters ago, and analysts’ earnings forecasts. We extend this work along two lines. First, we document time and cross-sectional variation in threshold-regarding behavior. Second, we examine the market responses when earnings surpass thresholds, controlling for the earnings surprises. Our results suggest that investors view threshold crossing as an important indicator of the health of companies.
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Ingolf Dittmann