Are Unmanaged Earnings Always Better for Shareholders?

Is earnings management always bad? No, if you believe the new paper by Arya, Glover, and Sunder. They point out that Earnings management can reduce the noise inherent in earnings and thereby reduce investor uncertainty. To quote the paper “a smooth car ride is not only comfortable, it also assures the driver of the driver’s expertise.” Moreover, too much transparency may reduce incentives of managers. (I must say that there are some good points, but overall I would still argue on the side of more, not less transparency and therefore less earnings management.) [FinanceProfessor Annotation]

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