The relationship between analyst following and real earnings management

Catanzaro, Christopher. (2009). The relationship between analyst following and real earnings management Honours Thesis, School of Business, The University of Queensland.

       
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Author Catanzaro, Christopher.
Thesis Title The relationship between analyst following and real earnings management
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 2009
Thesis type Honours Thesis
Total pages 99
Language eng
Subjects 14 Economics
Formatted abstract The literature suggests that managers use real earnings management to lower the volatility of the firm's earnings and to reduce the anticipated gap between analyst earnings forecasts and future reported income. Volatility reduces the usefulness of reported earnings per share as an anchor for analysts' forecasts and also increases the risk of large, negative items. Reducing the anticipated gap between analyst earnings forecasts and reported income means firms engaged in real earnings management have less chance of delivering an earnings number that differs from what was forecast. This thesis therefore argues that firms using real earnings management have more predictable earnings. If analysts have incentives to follow firms for which earnings are easier to predict, then analysts should be more likely to follow firms engaged in real earnings management. Following this logic, this thesis also predicts the magnitude of analyst following to be higher for firms within the coverage sample that are engaged in real earnings management. The results are consistent with both of these predictions. Specific circumstances in which real earnings management is likely to lead to lower analyst following are also considered.
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Created: Tue, 30 Nov 2010, 09:41:19 EST by Ning Jing on behalf of The University of Queensland Library