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Analyst Coverage, Earnings Management and Financial Development: An International Study

50 Pages Posted: 31 Mar 2012  

Francois Degeorge

University of Lugano - Faculty of Economics; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Yuan Ding

China Europe International Business School (CEIBS)

Thomas Jeanjean

ESSEC Business School - Department of Accounting and Management Control

Hervé Stolowy

HEC Paris - Accounting and Management Control Department

Date Written: March 31, 2012

Abstract

Using data from 21 countries, this paper analyzes the relation among analyst coverage, earnings management and financial development in an international context. We document that the effectiveness of financial analysts as monitors increases with a country’s financial development (FD). We find that in high-FD countries, increased within-firm analyst coverage results in less earnings management. Such is not the case in low-FD countries. Our results are economically significant and robust to reverse causality checks. Our findings illustrate one mechanism through which financial development mitigates the cost of monitoring firms and curbs earnings management.

Keywords: analyst coverage, earnings management, financial development, international comparison

JEL Classification: G3

Suggested Citation

Degeorge, Francois and Ding, Yuan and Jeanjean, Thomas and Stolowy, Hervé, Analyst Coverage, Earnings Management and Financial Development: An International Study (March 31, 2012). Journal of Accounting and Public Policy, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2031992

Francois Degeorge

University of Lugano - Faculty of Economics ( email )

via Giuseppe Buffi 13
CH-6904 Lugano
Switzerland
41 58 666 4634 (Phone)
41 58 666 4647 (Fax)

Swiss Finance Institute ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

HOME PAGE: http://www.istfin.eco.usi.ch/personal-info?id=705

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Yuan Ding (Contact Author)

China Europe International Business School (CEIBS) ( email )

699, Hongfeng Road
Shanghai 201206, Shanghai 201206
China

Thomas Jeanjean

ESSEC Business School - Department of Accounting and Management Control ( email )

Av Bernard Hirsch
Cergy-Pontoise 95021
France

Hervé Stolowy

HEC Paris - Accounting and Management Control Department ( email )

Jouy-en-Josas Cedex
France
+33 1 39 67 94 42 (Phone)
+33 1 39 67 70 86 (Fax)

HOME PAGE: http://www.hec.fr/stolowy

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