The "Numbers Game" in the Pre and Post-Sarbanes-Oxley Eras

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Executive Summary

This paper document a decline in the frequency of just meeting/beating analysts' earnings expectations in the aftermath of the 2001-2002 accounting scandals and the passage of the 2002 Sarbanes-Oxley Act (SOX). The primary purpose of this study is to explain this observed pattern. It hypothesize and provide empirical evidence that the drop in the frequency of just meeting/beating is associated with both (1) a decline in the use of downward earnings expectations management and upward accrual-based earning management in the Post-SOX period relative to the preceding seven-year period and (2) an increase in upward real earnings management activities.

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