Please use this identifier to cite or link to this item:
Bad News Herding, Excessive Write-offs, and Reversals of Restructuring Charges
|Title:||Bad News Herding, Excessive Write-offs, and Reversals of Restructuring Charges|
Reversals of Restructuring Charges
|Date Issued:||02 Aug 2018|
|Abstract:||This paper demonstrates that bad news herding is actually accompanied by bad news over-reporting. By focusing on write-offs during two major recessions of 2001 and 2008 and taking advantage of a unique hand-collected dataset on reversals of restructuring charges, we document that when firms herd in their negative reports, they over-state bad news, creating a cushion that can be reversed in the future. Specifically, we show that: (1) large write-offs by early firms are followed by clustered write-offs by their peer firms; (2) herding firms over-report and subsequently partially reverse their write-offs; and (3) the reversals help herding firms to meet financial analysts’ earnings forecasts that otherwise would not be met. Taken together, these results lend credence to the following mechanism behind bad news herding: firms strategically engage in herding with excessive bad news reports to benefit from subsequent reversals.|
|Appears in Collections:||
19 Financial: Earnings management|
Please email email@example.com if you need this content in ADA-compliant format.
Items in ScholarSpace are protected by copyright, with all rights reserved, unless otherwise indicated.