48 Pages Posted: 21 Mar 2011 Last revised: 6 Sep 2012
Date Written: July 2012
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: Suggested Citation