Each quarter, managers provide a summary of their firm’s accounting performance – a disclosure known as a quarterly earnings announcement. Earnings announcements attract significant attention from investors and media outlets because, if earnings are different than market expectations, stock price will change and financial analysts will revise their forecasts of future earnings. These effects are magnified if investors and analysts view the current earnings as persistent. Managers are therefore justifiably concerned with the extent to which current earnings fall in line with market expectations, and the extent to which investors and analysts view any differences as being persistent.
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