Accounting Quality and Media Attention Around Seasoned Equity Offerings

Abstract

This paper investigates how media coverage affects quality of accounting information for seasoned equity offering (SEO) firms. Media attention can either serve as a “watchdog” (watchdog hypothesis) and effectively reduce earnings management; or, alternatively, can create an extra pressure on managers putting them under spot so that managers try to fulfill market expectations and manage earnings (attention pressure hypothesis). We consider two types of earnings management: accrual earnings management, and real earnings management. Using a sample of SEOs from 1993 to 2014, we find that media serves as a watchdog for real earnings management, but does not affect accrual manipulations. Our findings hold after we control for endogenous factors affecting firms’ earnings management choices, and when we use alternative time periods for media coverage. This paper is the first to demonstrate that media attention affects the quality of accounting information during equity offerings as it successfully reduces real earnings management.

Keywords: media attention, real earnings management, accounting information quality, seasoned equity offerings