When a company's earnings miss Wall Street forecasts, its stock usually slips. Over the long term, though, those stocks may be better investments than shares of companies that avoid missing the estimates through fancy accounting footwork. To see which group performs better, Paul Hribar, an accounting professor at the University of Iowa's Tippie College ofrnBusiness, separated companies into two camps. One group of 1,367 companies missed earnings-per-share (EPS) projections by a penny while maintaining their usual expenditures. The other 2,099 beat their EPS numbers by a cent, but only after adjusting their accounting reserves or cutting outlays on R&D or advertising. On average, the near-miss companies outdid the overall market by 30% over the next three years, while the forecast-beaters lagged the market by 10.3%.
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