Analyst Independence and Earnings Management

Journal of Business Finance & Accounting, Forthcoming

47 Pages Posted: 28 Sep 2022 Last revised: 9 Nov 2023

See all articles by Zhongwei Huang

Zhongwei Huang

Fudan University - School of Management

Thomas Jeanjean

ESSEC Business School; ESSEC Business School - Department of Accounting and Management Control

Daphne Lui

ESSEC Business School

Date Written: August 24, 2022

Abstract

We examine whether analyst independence contributes to analysts’ monitoring role in deterring accruals earnings management. We first report a negative association between earnings management and the ratio of independent analysts to brokerage analysts covering a firm. Next, through the lens of the promotion of independent sell-side research institutions by the 2003 Global Research Analyst Settlement, we document a significant decrease in earnings management on firms affected by the Global Settlement’s mandate for time-limited support to back independent research institutions. Additionally, we find that, as the aforementioned support ended, the extent of monitoring effectiveness reverted to a level indistinguishable from that before the Global Settlement. Finally, using closures and mergers of independent research institutions as a quasi-natural experiment, we provide corroborating evidence consistent with analyst independence leading to more effective monitoring.

Keywords: analyst independence, monitoring, earnings management, regulatory reforms

JEL Classification: G34, K22

Suggested Citation

Huang, Zhongwei and Jeanjean, Thomas and Jeanjean, Thomas and Lui, Daphne, Analyst Independence and Earnings Management (August 24, 2022). Journal of Business Finance & Accounting, Forthcoming , Available at SSRN: https://ssrn.com/abstract=4222708

Zhongwei Huang

Fudan University - School of Management ( email )

670 Guoshun Road
Shanghai, 200433
China

Thomas Jeanjean

ESSEC Business School ( email )

Accounting and Management Control Department
Avenue Bernard Hirsch
BP 105 Cergy Cedex, 95021
France

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

Av Bernard Hirsch
Cergy-Pontoise 95021
France

Daphne Lui (Contact Author)

ESSEC Business School ( email )

Av Bernard Hirsch
Cergy-Pontoise 95021
France

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
82
Abstract Views
375
Rank
611,683
PlumX Metrics