The Monitoring Role of the Media: Evidence from Earnings Management

54 Pages Posted: 23 Mar 2017 Last revised: 1 Mar 2018

See all articles by Yangyang Chen

Yangyang Chen

Hong Kong Polytechnic University - Faculty of Business

C.S. Agnes Cheng

Hong Kong Polytechnic University - School of Accounting and Finance

Shuo Li

Western Washington University

Jingran Zhao

Hong Kong Polytechnic University

Date Written: February 28, 2018

Abstract

This paper examines the effect of media coverage on managers' earnings management decisions. We find that media coverage is negatively associated with both accrual-based and real earnings management, suggesting that the media serves as an external monitor of firm financial reporting, which curbs managers' opportunistic earnings management behaviors. Further analyses show that the effect of media coverage on earnings management is more pronounced for firms with low audit quality and weak board monitoring, indicating that the media substitutes for other monitoring mechanisms. We further find that earnings-related news coverage is more effective at curbing accrual-based earnings management, whereas operation-related news coverage is more effective at curbing real earnings management. Our new evidence is timely and adds to the debate on potency of the U.S. media.

Keywords: Media Coverage, Earnings Management, Monitoring

JEL Classification: G14, G41, G34

Suggested Citation

Chen, Yangyang and Cheng, C.S. Agnes and Li, Shuo and Zhao, Jingran, The Monitoring Role of the Media: Evidence from Earnings Management (February 28, 2018). Available at SSRN: https://ssrn.com/abstract=2938955 or http://dx.doi.org/10.2139/ssrn.2938955

Yangyang Chen

Hong Kong Polytechnic University - Faculty of Business ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

C.S. Agnes Cheng (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Shuo Li

Western Washington University ( email )

United States
3606503202 (Phone)

Jingran Zhao

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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