Incentive to manipulate earnings and its connection to analysts’ forecasts, trading, and corporate governance

Deniz Igan and Marcelo Pinheiro

Journal of Economics and Finance, 2012, vol. 36, issue 4, 821 pages

Abstract: We develop a model where insiders’ decision to manipulate earnings is linked both to their stake and to corporate governance. We show how earnings manipulation affects analysts’ forecasts and institutional trading. More precisely, whenever there is “excessive” earnings manipulation, we observe less optimistic analysts. Furthermore, institutions exhibit positive feedback trading behavior and appear to “front-run” analysts’ errors. Finally, companies with strong corporate governance are less prone to these phenomena, being able to avoid the detrimental effects of insiders’ incentives. We then provide strong empirical evidence to support our model. Copyright Springer Science+Business Media, LLC 2012

Keywords: Analysts’ Forecasts; Earnings Manipulation; Ownership; G11; G12; G14; G34 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1007/s12197-010-9131-1 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:jecfin:v:36:y:2012:i:4:p:781-821

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/12197/PS2

DOI: 10.1007/s12197-010-9131-1

Access Statistics for this article

Journal of Economics and Finance is currently edited by James Payne

More articles in Journal of Economics and Finance from Springer, Academy of Economics and Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().