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effect of income-increasing earnings management on analysts' responses

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Date Issued:
2012
Summary:
As a consequence of financial analysts' joint role as information intermediaries and firm monitors, I investigate analysts' responses to opportunistic corporate earnings management as firm mispricing increases. While firms' management have capital markets and executive equity incentives to manage earnings, financial analysts have trading volume, investment banking, and management information incentives which result in analysts' optimism bias. However, prior research also finds that analysts have reputational incentives, which motivate them to provide accurate and profitable outlooks. Using a generalized linear model (GLM), I estimate analysts' stock recommendation (price targets) responses for earnings management firms. I use the residual income model to compute fundamental value and I add proxies for earnings management to my analyst-responses models.... The main implications of my findings are that analysts use corporate earnings management and firm fundamental value in their stock recommendations (price targets) responses. In addition, my results provide evidence that, after controlling for earnings quality, analysts' stock recommendations (price targets) are consistent with strategies based on residual income models. These findings will be of interest to shareholders, regulators, and researchers as well as to finance and accounting practitioners.
Title: The effect of income-increasing earnings management on analysts' responses.
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Name(s): Sankara, Jomo.
College of Business
School of Accounting
Type of Resource: text
Genre: Electronic Thesis Or Dissertation
Date Issued: 2012
Publisher: Florida Atlantic University
Physical Form: electronic
Extent: xii, 188 p. : ill. (some col.)
Language(s): English
Summary: As a consequence of financial analysts' joint role as information intermediaries and firm monitors, I investigate analysts' responses to opportunistic corporate earnings management as firm mispricing increases. While firms' management have capital markets and executive equity incentives to manage earnings, financial analysts have trading volume, investment banking, and management information incentives which result in analysts' optimism bias. However, prior research also finds that analysts have reputational incentives, which motivate them to provide accurate and profitable outlooks. Using a generalized linear model (GLM), I estimate analysts' stock recommendation (price targets) responses for earnings management firms. I use the residual income model to compute fundamental value and I add proxies for earnings management to my analyst-responses models.... The main implications of my findings are that analysts use corporate earnings management and firm fundamental value in their stock recommendations (price targets) responses. In addition, my results provide evidence that, after controlling for earnings quality, analysts' stock recommendations (price targets) are consistent with strategies based on residual income models. These findings will be of interest to shareholders, regulators, and researchers as well as to finance and accounting practitioners.
Identifier: 820951424 (oclc), 3355872 (digitool), FADT3355872 (IID), fau:3961 (fedora)
Note(s): by Jomo Sankara.
Thesis (Ph.D.)--Florida Atlantic University, 2012.
Includes bibliography.
Mode of access: World Wide Web.
System requirements: Adobe Reader.
Subject(s): Investment analysis
Portfolio management
Earnings per share -- Accounting
Financial statements
Corporations -- Finance
Persistent Link to This Record: http://purl.flvc.org/FAU/3355872
Use and Reproduction: http://rightsstatements.org/vocab/InC/1.0/
Host Institution: FAU