Analyst Coverage and Corporate Earnings Management

This paper investigates the complex dynamics of corporate earnings management and its interaction with analyst coverage, highlighting three main drivers: capital market incentives, contractual incentives, and regulatory pressures. Each driver influences firms to manipulate earnings for different strategic benefitssuch as influencing stock prices, optimizing executive compensation, and complying with or exploiting regulations. The role of analysts is critically examined, suggesting that their effectiveness as monitors can significantly influence corporate behaviors concerning earnings management. The study discusses how analysts can either deter or inadvertently encourage these practices based on their interaction with corporate management and their monitoring capabilities. Through detailed empirical analysis, the paper aims to deepen the understanding of the dual role of analysts in either mitigating or exacerbating earnings manipulations. Overall, this research contributes to the broader discussions on corporate governance and financial reporting, aiming to enhance the transparency and reliability of financial markets.