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Does analyst coverage constrain real earnings management?

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  • Sun, Jerry
  • Liu, Guoping

Abstract

This study investigates the impact of analyst coverage on real earnings management, which is measured by using three proxies including abnormal cash flows from operations, abnormal discretionary expenses, and abnormal production costs. We document evidence that real earnings management is significantly higher when firms are followed by more analysts, suggesting that analyst coverage does not constrain real earnings management as effectively as it constrains accrual earnings management. Our findings also imply that firms with high analyst coverage have greater incentives to engage in real activities manipulation.

Suggested Citation

  • Sun, Jerry & Liu, Guoping, 2016. "Does analyst coverage constrain real earnings management?," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 131-140.
    • Handle: RePEc:eee:quaeco:v:59:y:2016:i:c:p:131-140
    DOI: 10.1016/j.qref.2015.03.009
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    Cited by:

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    4. Fang-Nan Liao & Xiao-Li Ji & Zhi-Ping Wang, 2019. "Firms’ Sustainability: Does Economic Policy Uncertainty Affect Internal Control?," Sustainability, MDPI, vol. 11(3), pages 1-26, February.
    5. Zhang, Ping & Wang, Yiru, 2023. "The bright side of analyst coverage on corporate innovation: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 89(C).
    6. Chen, Haiwei & Jory, Surendranath & Ngo, Thanh, 2020. "Earnings management under different ownership and corporate governance structure: A natural experiment with master limited partnerships," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 139-156.
    7. Eugster, Nicolas, 2017. "Family firms and financial analyst activity," FSES Working Papers 491, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    8. Mihai CARP & Iuliana Eugenia GEORGESCU, 2019. "The Influence of Audit Opinion on the Degree of Real Earnings Management. The Case of Romanian Listed Companies," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 17(156), pages 666-666.
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    More about this item

    Keywords

    Analyst coverage; Real activities; Governance role; Earnings management;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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