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    Are Seemingly Self-Serving Attributions in Earnings Press...
    research summary posted July 16, 2015 by Jennifer M Mueller-Phillips, tagged 14.0 Corporate Matters, 14.05 Earnings Targets and Management Behavior, 14.08 Press Release Language and Signaling 
    Are Seemingly Self-Serving Attributions in Earnings Press Releases Plausible? Empirical Evidence.
    Practical Implications:

    The finding that investors distinguish the plausibility among seemingly self-serving attributions based on concurrent industry performance and earnings commonality suggests that investors are somewhat sophisticated when interpreting these narrative disclosures. This study should be of interest to policymakers who advocate the importance of narrative disclosures. A potential concern that policymakers face is that managers can use unregulated narrative disclosures to manipulate investor perceptions, particularly if investors accept managers’ self-serving pronouncements uncritically. These findings mitigate this concern because investors appear to be sophisticated enough to use relevant information to distinguish the plausibility of seemingly self-serving attributions. Apparently, providing self-serving attributions purely to mislead investors may not be an effective strategy.


    Kimbrough, M. D., & Wang, I. Y. 2014. Are Seemingly Self-Serving Attributions in Earnings Press Releases Plausible? Empirical Evidence. Accounting Review 89 (2): 635-667.

    attribution, narrative disclosure, plausibility, earnings announcements
    Purpose of the Study:

    Managers often provide causal explanations for earnings news by linking earnings performance to internal actions or to external causes. These attributions potentially help investors assess the implications of current earnings news, such as earnings persistence. A well-documented pattern from prior research on attributions is that managers are more likely to attribute good news to internal causes (enhancing attributions) and bad news to external causes (defensive attributions). Managers presumably provide such seemingly self-serving attributions to heighten (dampen) investors’ perceptions of the persistence of good (bad) earnings news, thereby increasing (decreasing) the market reward (penalty) for good (bad) earnings news.

    Investors face a challenge when interpreting seemingly self-serving attributions because they may provide unbiased information about future earnings or they may reflect managers’ psychological biases or opportunism. In this study, the authors examine the information that investors appear to rely upon when assessing the plausibility of seemingly self-serving attributions in earnings press releases. Specifically, the authors test whether the market’s reactions to earnings announcements that contain seeming self-serving attributions vary with:
    (1) The concurrent performance of other firms in the same industry, and 
    (2) The commonality of the firm’s earnings with the market and its industry, defined as the historical degree of co-movement between a firm’s earnings and market- and industry-level earnings.

    Design/Method/ Approach:

    Using a sample of earnings press releases from 94 randomly selected firms from 1999 to 2005, the authors document cross-sectional differences in the market’s response to earnings announcements that contain either defensive or enhancing attributions that are consistent with the predictions.


    The authors find that firms that provide defensive attributions to explain earnings disappointments experience less severe market penalties when:
    (1) More of their industry peers also release bad news, and
    (2) Their earnings share higher commonality with industry- and market-level earnings.

    On the other hand, firms that provide enhancing attributions to explain good earnings news reap greater market rewards when:
    (1) More of their industry peers release bad news, and
    (2) Their earnings share lower commonality with industry- and market-level earnings.

    Collectively, the results suggest that investors neither completely ignore seemingly self-serving attributions nor accept them at face value, but use industry- and firm-specific information to assess their plausibility. Further analyses reveal that investors’ use of industry peer performance and earnings commonality information appears justified because investors’ perceptions are consistent with the association between the plausibility measures and the ex post actual persistence of earnings surprises.

    In supplemental analysis, the authors find that the pattern of the effects of the plausibility factors observed for the seemingly self-serving sample does not extend to the non-self-serving sample, indicating that investors use these measures to assess plausibility only when seemingly self-serving attributions exist.

    Corporate Matters
    Earnings Targets & Management Behavior, Press Release Language & Signaling