Analyst Proximity and Earnings Management

48 Pages Posted: 21 Mar 2011 Last revised: 6 Sep 2012

Yue Tang

University of Florida - Department of Finance, Insurance and Real Estate

Jin (Ginger) Wu

University of Georgia - Department of Banking and Finance

Date Written: July 2012

Abstract

This paper explores the hypothesis that the geographical proximity of analysts to the firms they cover influences the earnings management of those firms. Using a unique, hand-collected database of analyst locations, we show that firms with a higher level of local analyst coverage manage their earnings less. These firms are less likely to overinvest and make empire-building acquisition bids. They also have better operating performance and lower risks. The results indicate that geographical proximity facilitates analysts’ monitoring by reducing monitoring cost.

Keywords: Analyst geography, Earnings management, Financial analyst, Corporate governance

JEL Classification: G34, M41, G24

Suggested Citation

Tang, Yue and Wu, Jin (Ginger), Analyst Proximity and Earnings Management (July 2012). Available at SSRN: https://ssrn.com/abstract=1787750 or http://dx.doi.org/10.2139/ssrn.1787750

Yue Tang

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-273-4447 (Phone)

Jin (Ginger) Wu (Contact Author)

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

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