Does analyst forecast informativeness affect managers’ financial reporting incentives?

•Managers rely on analyst forecast informativeness to adjust their financial reporting incentives.•Match Index to estimate analyst-forecast-induced earnings management.•When the market responds less to forecasts managers engage in less earnings management.•Market response to analyst forecasts could...

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Bibliographic Details
Published in:Economics letters 2024-11, Vol.244, p.111995, Article 111995
Main Authors: Krieg, Kimberly S., Siagian, Ferdinand, Wu, Juan
Format: Article
Language:English
Subjects:
Abnormal return
Analyst forecasts
Earnings management
Informativeness
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Summary:•Managers rely on analyst forecast informativeness to adjust their financial reporting incentives.•Match Index to estimate analyst-forecast-induced earnings management.•When the market responds less to forecasts managers engage in less earnings management.•Market response to analyst forecasts could explain the mixed evidence of earnings management. This study investigates how the informativeness of analyst forecasts affects managers’ financial reporting incentives. Using a novel Match Index to estimate the earnings management induced by analyst forecasts, we find that when analyst forecasts are less informative, managers place less value on using them as a benchmark and thus, engage in less earnings management to meet that benchmark.
ISSN:0165-1765
DOI:10.1016/j.econlet.2024.111995