Description:
We investigate whether managers cater to different incentives of shareholders and debtholders by choosing priorities among alternative earnings targets. Building upon an economic intuition that managers selectively allocate resources to meet the needs of a dominant stakeholder class, we posit that the relative influence of equity and debt in capital structure is associated with whichever earnings target managers prioritize. We find that our proxy for debtholders’ influence decreases (increases) the likelihood of meeting or just beating equity analyst earnings targets (zero earnings targets), consistent with managers’ catering incentives playing a role in earnings target priorities