Under Watchful Eyes: Analyst Site Visits and Firm Earnings Management

46 Pages Posted: 4 Dec 2020 Last revised: 13 Jul 2021

See all articles by Zhan Gao

Zhan Gao

Lancaster University

Xiaofeng Quan

Soochow University

Xingmei Xu

Renmin University of China

Date Written: July 10, 2021

Abstract

This paper investigates whether analyst site visits, where sell-side analysts visit corporate sites and interact with management, reduces earnings management by host firms. Taking advantage of the disclosure of analyst site visits by Chinese listed firms, we find that the intensity of analyst site visits is negatively associated with discretionary accruals, and this relation is robust to controlling for endogeneity. Furthermore, we find that site visits attended by star analysts and including factory tours are associated with lower levels of discretionary accruals than those without these features. We also report that the number and coverage of questions posed during site visits are negatively associated with discretionary accruals. Our results demonstrate that site visits by sell-side analysts perform a vital monitoring role and exert significant constraints on firms’ opportunistic financial reporting.

Keywords: earnings management, external monitoring, sell-side analysts, site visits

JEL Classification: G24, G34, M41

Suggested Citation

Gao, Zhan and Quan, Xiaofeng and Xu, Xingmei, Under Watchful Eyes: Analyst Site Visits and Firm Earnings Management (July 10, 2021). Available at SSRN: https://ssrn.com/abstract=3708879 or http://dx.doi.org/10.2139/ssrn.3708879

Zhan Gao (Contact Author)

Lancaster University ( email )

Lancaster LA1 4YX
United Kingdom
44-1524-593-151 (Phone)

Xiaofeng Quan

Soochow University ( email )

No 50,Donghuan Road
No 50,Donghuan Road
Suzhou, CO Jiangsu 215021
China
0086-0512-67162489 (Phone)

Xingmei Xu

Renmin University of China ( email )

Room B906
Xianjin Building
Beijing, Beijing 100872
China

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