Earnings Management: Do Firms Play “Follow the Leader”?

Yiwen Gu ()
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Yiwen Gu: Fudan University

A chapter in Proceedings of the 2026 11th International Conference on Social Sciences and Economic Development (ICSSED 2026), 2026, pp 405-418 from Springer

Abstract: Abstract In this study, we investigate whether the performance disclosure of one firm influences the discretionary reporting choices of another firm. To test this, we identify an industry leader, defined as the first large announcing firm in the industry. Our findings show that the discretionary performance of follower firms—those that release their announcements after the leader—is positively associated with the leader’s reported results. When the leader fails to meet analysts’ forecasts, followers tend to report lower discretionary accruals and are less likely to meet analysts’ expectations themselves. Conversely, when the leader reports favorable results, followers exhibit higher discretionary accruals and have a greater likelihood of meeting expectations. Taken together, these findings suggest that managers of follower firms believe the leader’s earnings announcement shapes investors’ and other stakeholders’ expectations regarding their own firm’s performance, which strengthens the inclination to adjust their reporting strategies.

Keywords: earnings management; discretionary accruals; analysts’ forecast; herd effect (search for similar items in EconPapers)
Date: 2026
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DOI: 10.2991/978-94-6239-701-9_42

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