An international comparison of incentives for earnings management in order to meet analysts forecasts

Abstract

Una comparación internacional del incentivo para manipular el resultado con el objetivo de alcanzar los pronósticos de los analistas. Investigaciones previas han evidenciado que cuando los resultados alcanzan, o superan, los pronósticos de los analistas, el mercado reacciona positivamente, mientras que, cuando dichos pronósticos no son alcanzados, la reacción del mercado es la contraria. Por ello, los pronósticos se convierten en metas a batir y, tal como la literatura ya ha contrastado, surge un incentivo para la manipulación del resultado. En este contexto, el presente trabajo va más allá, evidenciando que la reacción positiva o negativa es de diferente magnitud según los mercados y que ello explica que la fuerza con la que las empresas perciben el incentivo a manipular los resultados para alcanzar dichos pronósticos también sea diferente según el mercado en el que cotiza. Comparando seis mercados, obtenemos que el incentivo es más potente cuanto mayor es el premio por cumplir los pronósticos, o la penalización por no hacerlo. Previous investigations have shown that when earnings meet analysts’ forecasts, the market reacts positively, and when these forecasts are not reached, the market reacts negatively. For this reason, forecasts become goals to beat, and as the literature has revealed, this creates an incentive for earnings management. The present paper extends prior research, providing evidence that the magnitude of the reward (penalty) for companies meeting (failing to meet) earnings forecasts differs depending on the market. In addition, it reveals that the strength of the incentive for companies to manage their earnings differs depending on the market in which they are listed. We compare six stock markets and find that the most powerful incentives arise when the reward for meeting the forecasts or the penalty for not doing so is greater.

Is there a complementary or a substitutive relationship between climate governance and analyst coverage? Its effect on climate disclosure

“…The certainty of their predictions is synonymous with their professional credibility and for this, in addition to evaluating the financial performance and growth expectations, they consider the actions, risks and impacts from the environmental, social and governance point of view, among other inherent and specific assets to each firm (Healy & Palepu, 2001). Therefore, their demands for corporate information are strongly linked to the fundamental role they play as professionals and that contributes to providing greater confidence in the economic system, because corporate information reduces the information asymmetries and the risks borne by investors (García‐Sánchez, Aibar‐Guzman, et al, 2020; Jarne Jarne & Callao Gastón, 2021).…”