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

In: The journal of financial research: the journal of the Southern Finance Association and the Southwestern Finance Association, Band 21, Heft 3, S. 315-331

Abstract

AbstractI 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.