Analysts’ Forecasts as an Incentive for Earnings Management
27 Pages Posted: 5 Feb 2015
Date Written: February 5, 2015
Abstract
The aim of our study is to determine, within the area of Listed Spanish companies, whether analyst forecasts constitute an incentive to manage earnings (upwards to achieve them or downwards to avoid exceeding them) and whether this incentive acquires the same or different importance for the management of companies at different times.
Using the approach of discretionary accruals to measure manipulation, the results show that earnings forecasted by analysts constitute an incentive to manage earnings and that this incentive is greater as the publication of earnings approaches. However, we do not find evidence of an incentive to manage earnings downwards in order not to exceed analyst forecasts, thereby avoiding subsequent forecasts that might be difficult to achieve.
Keywords: earnings management, analysts’ forecasts, earnings management incentives, discretionary accruals, listed Spanish companies
JEL Classification: M41
Suggested Citation: Suggested Citation