Do analysts’ earnings forecasts exclude earnings management? Evidence from audit adjustments

Songsheng Chen, Qingqing Liu and Li Yao

Asia-Pacific Journal of Accounting & Economics, 2024, vol. 31, issue 6, 1008-1027

Abstract: Using audit adjustments to infer earnings management, we find that analysts’ earnings forecasts exclude a large amount of earnings management. The exclusion is greater for firms with larger institutional ownership and for firms with higher analyst following, where analysts have strong incentive to forecast economic earnings that are free of earnings management. Although auditors ultimately adjust the same earnings management from reported earnings, analysts are able to timely disseminate firms’ economic earnings to the market. Our study sheds light on analysts’ informational role in the capital markets and extends the boundary of the earnings management literature by investigating the earnings management adjusted by auditors instead of the earnings management remaining in reported earnings.

Date: 2024
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DOI: 10.1080/16081625.2023.2298924

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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