When the latest blockbuster movie hits the screens, have you ever wondered why it came out when it did? Why at the beginning of the summer quarter or right before the new year? It’s a question that might be top of mind as we get into awards season, with the Oscars just around the corner.

James Gong, an accounting professor at Cal State Fullerton’s College of Business and Economics, compared the decisions on when to release movies at public and private studios in his new study, “Real earnings management and the strategic release of new products: evidence from the motion picture industry.”

The article was co-authored by faculty from USC’s Marshall School of Business and San Diego State University’s Fowler College of Business and appears in the A+ journal Review of Accounting Studies.

Why The Best Summer Movie Might Come Out at the End of June

According to Gong’s research, you might want to wait for the end of each quarter for the best movies.

If you watch a trailer of a movie and many people like this trailer, then it is very likely that the movie will be released in June even if the trailer says the movie will be in theater in August,” says Gong. “The reason is that the movie seems to have high revenue potential for the studio and the studio will release it in the last month of a quarter (June) rather than in the middle of the next quarter (August).”

And this pattern is unlikely to change anytime soon.

“In coming years, I expect that the pattern that we document will not change as long as the capital market fixates on quarterly earnings, which exert pressure on managers to meet the Wall Street expectations,” says Gong. “A retired Northwestern University professor, Alfred Rappaport, argues that this is a systematic problem. It is very difficult to change.”

Studying Motion Pictures to Improve Management Across Industries

Gong says that while prior studies on the topic utilized estimates from complex regression models to capture unusual expenditures such as R&D and cost of goods sold, that estimation process was prone to error.

By focusing solely on the motion picture industry, more accurate results are possible. So this is a new direction in real earnings management research, which can impact many industries.

A surprise in the findings: managers avoid rush releases of movies that have a narrow appeal and movies by directors with whom they have longstanding professional relationships.

“This suggests that managers minimize the negative impact of rush releases. Agency theory and prior empirical studies often emphasize opportunistic behavior of managers,” observes Gong.

 “We highlight that although managers are concerned about short-term earnings, they also try to choose the least costly route to achieve their financial reporting goals. Managers are very rational in that they try to balance the short-term performance pressure and long-term value creation.”

Gong hopes his research will inform boards of directors to help managers mitigate financial reporting concerns. That would allow managers to make decisions to maximize long-term shareholder value, rather than simply meeting short-term earnings targets.

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