Analyst Optimism,Institutional Ownership And Earnings Management

As a highly regarded indicator in the field of corporate finance,earnings information is an important reference for various market participants when making investment decisions.For motives such as maintaining and raising share prices,management may manipulate company performance through earnings management.At present,the ways in which corporate management conducts earnings management are mainly divided into two categories: accrual and true.Among them,accrual earnings management is to make accounting book adjustments for the overall surplus,while real earnings management needs to be realized through real transactions.Since management’s motives for earnings management may differ,the preferences for the use of the two types of earnings management are also different.Therefore,the study of corporate earnings management behavior is important for regulating corporate governance.As an important part of China’s capital market,analysts play an important intermediary role in serving the real economy and the capital market.The current academic community has two main views on the influence of analysts’ forecasts on corporate earnings management: the pressure effect and the monitoring effect.Although the effects of pressure and monitoring are diametrically opposed,numerous studies have shown that analysts generally have a tendency to be optimistic about the surplus forecasts issued by listed companies for reasons such as underwriting business,commission income and client relationship maintenance.Therefore,in actual economic activities,the influence of analysts on earnings management may be dominated by the pressure effect.Based on this speculation,this paper first explores whether the pressure effect exists with the effect of analysts’ optimistic tendency on corporate earnings management.In addition to analysts,institutional investors also influence management’s behavior.On the one hand,since some institutional investors aim to share the benefits of long-term performance of portfolio companies,there may be a certain role of monitoring governance.On the other hand,since some institutional investors aim to gain short-term gains through trading,effective monitoring may not be formed.Based on this,the paper further explores whether institutional investors in general can play a governance role over corporate management’s behavior of catering to analysts’ optimistic tendencies through earnings management.In addition,based on the perspective of investment behavior,this paper divides institutional investors into two categories: trading institutional investors and stable institutional investors,and further investigates the similarities and differences of corporate management’s tendency to cater to analysts’ optimism through earnings management when corporate institutional investors behave as trading institutional investors and stable institutional investors,respectively.Based on a compilation of relevant domestic and international literature and theory,this paper empirically tests the relationship between analysts’ optimistic tendencies and earnings management by constructing an OLS model considering individual and year fixed effects using data from A-share listed companies in China during the period 2010-2020.It is found that in the face of analysts’ optimistic forecasts,corporate management will cater to them through earnings management,thus supporting the stress effect hypothesis.For corporate management’s behavior of catering to analysts’ optimistic tendencies through earnings management,on the whole,institutional investors cannot play a supervisory governance role,thus supporting the ineffective supervision hypothesis.Considering institutional investor heterogeneity,if corporate s institutional investor type is transactional,the pandering phenomenon still exists.Stable institutional investors have some governance effect on management’s pandering behavior,but this effect is limited to accrual earnings management,and it is difficult to play an effective governance role for the more hidden real earnings management.The main findings of this paper remain the same after robustness tests using replacement variables,changing the sample and propensity score matching.There are certain theoretical and practical implications of this study.On the one hand,it enriches the study of earnings management motives by cutting from the perspective of analysts’ optimistic tendencies;on the other hand,it also enriches the study of the governance role of institutional investors.