Analysts' estimates

François Aubert and Gary Grudnitski

Review of Accounting and Finance, 2012, vol. 11, issue 1, 53-72

Abstract: Purpose - The purpose of this paper is to examine whether mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union reduced earnings manipulation, as proxied by the difference between a firm's reported earnings andex postestimate of earnings by financial analysts. Design/methodology/approach - Controlling for firm and institutional factors and drawing upon a sample of 15,034 firm‐year observations from 20 European countries, the research design entailed examining the change in the earnings manipulation proxy during pre‐ and post‐IFRS adoption periods. Findings - The principal finding from this analysis was a decline in the magnitude of the proxy for earnings manipulation coincidental with IFRS adoption, which suggests that a uniform financial reporting regime may have contributed to exposing the use of temporary activities to manipulate earnings. Originality/value - The results of this study make an important contribution to the extant literature on the outcomes of IFRS adoption, and should be of value to investors and standard setters, who want honest and comparable financial reporting but are opposed to regulatory intervention. Of equal significance is the innovative model introduced to proxy for earnings manipulation.

Keywords: Europe; Earnings; Financial reporting; International standards; Earnings management; Consensus earnings estimates; Financial analysts; International Financial Reporting Standards (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:rafpps:v:11:y:2012:i:1:p:53-72

DOI: 10.1108/14757701211201821

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