Do Analysts Account for Earnings Management?

51 Pages Posted: 29 Aug 2008 Last revised: 17 Aug 2012

See all articles by Dan Givoly

Dan Givoly

Pennsylvania State University, Smeal College of Business

Carla Hayn

University of California at Los Angeles - Anderson School of Management

Timothy R. Yoder

University of Nebraska at Omaha

Date Written: November 1, 2011

Abstract

We examine whether analysts include the managed earnings component in their forecasts or are surprised by the managed earnings component. We also investigate whether analysts’ earnings forecasts for future periods and their stock recommendations are affected by earnings management in the current period. The results, based on a sample of 583 restatements and a much larger sample of cases where earnings are likely to have been managed upward, are consistent with analysts forecasting the managed earnings number. Further, the managed earnings component appears to influence analysts’ subsequent earnings forecasts, leading to upward forecast revisions and upgraded stock recommendations which appear to be unwarranted given the firms’ subsequent operating performance.

Keywords: Financial Analysts, Earnings Forecasts, Forecast Efficiency

JEL Classification: C53, D83, G14, G29, M41, M43

Suggested Citation

Givoly, Dan and Hayn, Carla and Yoder, Timothy R., Do Analysts Account for Earnings Management? (November 1, 2011). Available at SSRN: https://ssrn.com/abstract=1260032 or http://dx.doi.org/10.2139/ssrn.1260032

Dan Givoly (Contact Author)

Pennsylvania State University, Smeal College of Business ( email )

305 Business Building
University Park, PA 16802
United States
814-865-0587 (Phone)
814-863-8393 (Fax)

Carla Hayn

University of California at Los Angeles - Anderson School of Management ( email )

D410 Anderson Complex
Los Angeles, CA 90095-1481
United States
310-206-9225 (Phone)

Timothy R. Yoder

University of Nebraska at Omaha ( email )

Omaha, NE 68182
United States
402-554-2566 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
482
Abstract Views
2,277
rank
81,457
PlumX Metrics