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Results makeup manual

It is already a classic how companies go to great lengths to make up their publications of quarterly results.

To start using lax accounting criteria and bordering on “creative accounting”

They look at how corporate results would be in the US using all orthodox GAAP criteria, which many do not:

But we will go further.

Really interesting this study that I’m going to comment on now. It follows that company managers know very well when they have to publish bad results and when good ones.

It is conducted by Terry Shevlin of the UC Irvine Merage School of Business and Jake Thornock of the University of Washington Foster School of Business.

That is to say, according to the results of the study, when a company is going to give bad results, what is important is to give it after the market closes, that without hesitation, and also on a busy day, and a lot of concentration of other results. As we can see in the table, the media attention drops a lot.

In fact, the results that are published on these types of days according to the study are much worse than the average.

Ed deHaan: Want to Soft-Pedal That Shaky Earnings Report? Don’t File on Friday

https://www.gsb.stanford.edu/insights/ed-dehaan-want-soft-pedal-shaky-earnings-report-dont-file-friday

Check out some quotes from work that are not wasted:

DeHaan also speculates that managers can use timing strategies to minimize the volatility of stocks. “With the speed of information spreading now, people are focusing on the headline flash,” he says. “It takes time to read the press release, read the financial reports and really understand what the news is; Meanwhile, the stock is bouncing all over the place. “So if it’s possible to hit the market at a time when your metabolism is a little slower, smart companies will try to do it.

That may be the reason why very few earnings announcements are made during regular market hours – just 2% in 2011, down from 22% in 2000. (Most happen shortly before markets open or just after of the closing hood). 2012: On October 8, as Google prepared to release a disappointing quarterly report after the close, the company’s financial writer mistakenly released it in the middle of the day. The stock lost $ 22 billion in market value in a few minutes before trading was halted. Oops! Later, a fund manager said that the fundamentals weren’t really that bad, but “in the middle of a trading day, people fire first and ask questions later.”

(… /…)

They also find that companies reschedule their quarterly announcements often enough – for innocent reasons – that a devious maneuver does not attract attention. “That frequency of benign changes is the necessary camouflage for strategic changes,” says deHaan. “It means there is a group large enough to hide.”

So it’s not too surprising, then, that companies seem to do that. Data shows that reported earnings after regular trading hours and on heavily loaded days, as well as Fridays, interestingly enough, are significantly worse (relative to consensus forecasts) than at other times. “Obviously we can’t know what a company’s intention was in any specific case,” says deHaan, but on the whole, “it seems that managers try to hide bad news by announcing it in periods of low attention.”

And it works in reverse, too. “Our results also indicate that companies that exceed expectations are trying to highlight their good news by moving to the days when there is increased attention,” says deHaan. “They are two faces of the same coin”.

Well, they already see a world of crooks in the stock market, and in the results publications we have no exception.

I would add something that is not in the study. It is very clear that the more advanced the results season you publish, the more likely you are to get fewer cases. The market takes more seriously the good and bad results at the beginning, when it is not clear what the general bias of the campaign will be than at the end, when in your sector they have already published a lot and things are clear.

To all this we should add other tricks that they use, which we have already commented on other times, such as the Tom Sayer effect, if they are going to publish x results, they say a forecast even a penny below, so that when they publish they can say the famous phrase of “better than expected.”

This is better than expected, it is a trick of the lowest.

In another vein, it must also be said that the results are falsely distorted by the repurchases of own shares that move at record levels. Shares are bought back, there is less in circulation and since the results are published as earnings per share, it seems that they are higher, in a mere arithmetic game.

In short, many factors to consider, so that later we are not caught by surprise 🙂

Jose Luis Carpathians

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