The Monitoring Role of the Media: Evidence from Earnings Management
54 Pages Posted: 23 Mar 2017 Last revised: 1 Mar 2018
Date Written: February 28, 2018
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: Suggested Citation