- مبلغ: ۸۶,۰۰۰ تومان
- مبلغ: ۹۱,۰۰۰ تومان
Analysts serving as external monitors to managers is a topic of considerable interest in the analyst coverage literature. There are two outcomes of analyst coverage studies: curbing and stimulating earnings management. However, recent studies (such as Yu, 2008) only provide evidence supporting the curbing side. Given the fact that the data of these studies focus on developed markets and the finding of Rodríguez-Pérez and Hemmen (2010) that external governance mechanisms may stimulate earnings management in an opaque information environment, we conjecture whether stimulating side would be dominant in emerging markets. China offers a valuable setting for us to test the question. Using the data of China capital market from 2003 to 2009, we find that analyst coverage stimulates earnings management through above-the-line items (ALIs) where earnings management cannot be easily detected, and curbs earnings management through below-the-line items (BLIs) where earnings management can be easily detected. We also find that the adoption of International Financial Reporting Standards (IFRS) in China does create many new opportunities for managers’ earnings management but does not significantly improve the monitoring effect of analyst coverage. We only find that compared to those without analyst coverage, firms with analyst coverage have a lower level of earnings management through BLIs after IFRS adoption. These findings suggest that information opacity may weaken the monitoring effect of external corporate governance mechanisms and high quality accounting standards in the literal sense may not enhance the monitoring effect of external corporate governance mechanisms if it is not compatible with the market’s institutional environment. In addition, we find that firms with earnings meeting the benchmark have a lower level of earnings management, which indicates that brightline accounting based rules used in emerging capital markets may constrain the managers’ behavior.
5. Conclusions and implications
According to agency theory and earnings management motivation literature, accounting information disclosed on firms’ financial statements tends to be asymmetrically distributed and intentionally distorted, and managers may take advantage of information opacity to make earnings manipulation possible (Rodríguez-Pérez and Hemmen, 2010). Under these circumstances, the consistent monitoring by analysts on corporate financial information would be expected to reduce information opacity, thus decreasing the possibility of earnings management. However, this does not necessarily mean that the degree of earnings management would be reduced, because managers will continue to create or make use of the opaque information setting to avoid scrutiny from analysts. With this in mind, China provides us with a valuable setting to test our questions.