Articlegreen1998

THE EFFECT OF ANALYSTS' FORECASTS ON EARNINGS MANAGEMENT IN FINANCIAL INSTITUTIONS

50 citations0/0 files storedThe Journal of Financial Research

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Auditing, Earnings Management, Governance Accounting and Organizational Management Corporate Governance and Financial Management

Abstract

Abstract I test a market consensus hypothesis about earnings management in the banking industry. This hypothesis states that when analysts have reached a consensus in their earnings forecasts, managers have an incentive to manage earnings through discretionary accruals to achieve market expectations. A sample of banks is partitioned based on the degree of forecaster consensus, and the behavior of one discretionary accrual, the loan loss provision, is predicted for each partition. The results suggest bank managers make greater use of the loan loss provision to manipulate earnings in a discretionary manner when analysts have reached a consensus in their earnings predictions.

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References

1977RISK, UNCERTAINTY, AND DIVERGENCE OF OPINION 1988Evidence of Earnings Management from the Provision for Bad Debts 1985Divergence of Opinion in Complete Markets: A Note 1980Heterogeneous Expectations, Restrictions on Short Sales, and Equilibrium Asset Prices 1983On Divergence of Opinion and Imperfections in Capital Markets 1990The International Debt Crisis and Bank Loan-Loss-Reserve Decisions: The Signaling Content of Partially Anticipated Events

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