Earnings management, forecast guidance and the banking crisis

This paper studies earnings management (EM) and forecast guidance (FG) activities of European banks between 2004 and 2008. Using 22,564 analyst forecasts for 55 banks, we find that the proportion of banks hitting or beating analyst consensus fell from 68.22% pre-crisis to 28.13% during the crisis. Banks enjoy higher cumulative adjusted returns (CARs) when they hit analyst consensus only in the crisis. EM is evident pre- but not during the crisis - it has no CAR effects. FG increases the probability of hitting benchmark earnings and during the crisis yields higher CARs. EM and FG act as complements in the crisis period.