IDEAS home Printed from https://ideas.repec.org/a/abg/anprac/v15y2011i4873.html
   My bibliography  Save this article

The role of analysts as gatekeepers: enhancing transparency and curbing earnings management in Brazil

Author

Listed:
  • Antonio Lopo Martinez

Abstract

This paper examines the relationship of analysts' coverage, forecasting errors and earnings management. It corroborates the role of analysts as gatekeepers by finding that analysts enhance transparency and reduce the scope of earnings management. To identify analysts' coverage we used the I/B/E/S, from where we also obtained information on the consensus projections of analysts for listed Brazilian companies. The results indicated a negative correlation between the number of analysts covering firms and the magnitude of their discretionary accruals in absolute terms, indicating that more scrutiny inhibits earnings management. We also found a negative correlation between analysts' coverage and forecasting errors. Multivariate regressions showed statistically significant results in the same sense. Therefore, market analysts, despite the severe criticism they receive from the specialized press, actually have a beneficial effect on corporate governance by monitoring managers and inhibiting earnings management.

Suggested Citation

  • Antonio Lopo Martinez, 2011. "The role of analysts as gatekeepers: enhancing transparency and curbing earnings management in Brazil," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 15(4), pages 712-730.
    • Handle: RePEc:abg:anprac:v:15:y:2011:i:4:873
    as

    Download full text from publisher

    File URL: https://rac.anpad.org.br/index.php/rac/article/view/873/870
    Download Restriction: no
    File URL: https://rac.anpad.org.br/index.php/rac/article/download/873/870
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Beneish, Messod D, 1991. "Stock Prices and the Dissemination of Analysts' Recommendations," The Journal of Business, University of Chicago Press, vol. 64(3), pages 393-416, July.
    2. Lloyd-Davies, Peter & Canes, Michael, 1978. "Stock Prices and the Publication of Second-Hand Information," The Journal of Business, University of Chicago Press, vol. 51(1), pages 43-56, January.
    3. Kang, Sh & Sivaramakrishnan, K, 1995. "Issues In Testing Earnings Management And An Instrumental Variable Approach," Journal of Accounting Research, Wiley Blackwell, vol. 33(2), pages 353-367.
    4. Thabang Mokoaleli‐Mokoteli & Richard J. Taffler & Vineet Agarwal, 2009. "Behavioural Bias and Conflicts of Interest in Analyst Stock Recommendations," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(3‐4), pages 384-418, April.
    5. Jeffery Abarbanell & Reuven Lehavy, 2003. "Can Stock Recommendations Predict Earnings Management and Analysts’ Earnings Forecast Errors?," Journal of Accounting Research, Wiley Blackwell, vol. 41(1), pages 1-31, March.
    6. Brad Barber & Reuven Lehavy & Maureen McNichols & Brett Trueman, 2001. "Can Investors Profit from the Prophets? Security Analyst Recommendations and Stock Returns," Journal of Finance, American Finance Association, vol. 56(2), pages 531-563, April.
    7. Mark T. Bradshaw & Scott A. Richardson & Richard G. Sloan, 2001. "Do Analysts and Auditors Use Information in Accruals?," Journal of Accounting Research, Wiley Blackwell, vol. 39(1), pages 45-74, June.
    8. Thabang Mokoaleli-Mokoteli & Richard J. Taffler & Vineet Agarwal, 2009. "Behavioural Bias and Conflicts of Interest in Analyst Stock Recommendations," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(3-4), pages 384-418.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cristiano Machado Costa & José Mauro Madeiros Velôso Soares, 2022. "Standard Jones and Modified Jones: An Earnings Management Tutorial," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 26(2), pages 200305-2003.
    2. Marta Cristina Pelucio Grecco, 2013. "The Effect of Brazilian convergence to IFRS on earnings managment by listed Brazilian nonfinancial companies," Brazilian Business Review, Fucape Business School, vol. 10(4), pages 110-132, October.
    3. Almeida, José Elias Feres de & Dalmácio, Flávia Zóboli, 2015. "The Effects of Corporate Governance and Product Market Competition on Analysts' Forecasts: Evidence from the Brazilian Capital Market," The International Journal of Accounting, Elsevier, vol. 50(3), pages 316-339.
    4. Pelucio-Grecco, Marta Cristina & Geron, Cecília Moraes Santostaso & Grecco, Gerson Begas & Lima, João Paulo Cavalcante, 2014. "The effect of IFRS on earnings management in Brazilian non-financial public companies," Emerging Markets Review, Elsevier, vol. 21(C), pages 42-66.
    5. Jorge Vieira da Costa Jr & Alfredo Sarlo Neto & Andrea Bispo da Silva, 2016. "Balance sheet classification of compound financial instruments and the judgment of securities market analysts," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 4(5), pages 37-54, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Barakat, Ahmed & Ashby, Simon & Fenn, Paul, 2018. "The reputational effects of analysts' stock recommendations and credit ratings: Evidence from operational risk announcements in the financial industry," International Review of Financial Analysis, Elsevier, vol. 55(C), pages 1-22.
    2. Ruei-Shian Wu & Hsiou-wei W. Lin, 2014. "Security analysts' incentive and cognitive processing bias: evidence from analysts' recommendations," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 21(4), pages 443-471, December.
    3. Corredor, Pilar & Ferrer, Elena & Santamaria, Rafael, 2019. "The role of sentiment and stock characteristics in the translation of analysts’ forecasts into recommendations," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 252-272.
    4. Busse, Jeffrey A. & Clifton Green, T., 2002. "Market efficiency in real time," Journal of Financial Economics, Elsevier, vol. 65(3), pages 415-437, September.
    5. Asquith, Paul & Mikhail, Michael & Au, Andrea, 2004. "Information Content of Equity Analyst Reports," Working papers 4264-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    6. Frey, Stefan & Herbst, Patrick, 2014. "The influence of buy-side analysts on mutual fund trading," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 442-458.
    7. Jorida Papakroni, 2018. "The dispersion anomaly and analyst recommendations," Review of Quantitative Finance and Accounting, Springer, vol. 50(3), pages 861-896, April.
    8. Philipp M. Schlumpf & Markus M. Schmid & Heinz Zimmermann, 2008. "The First‐ and Second‐Hand Effect of Analysts' Stock Recommendations: Evidence from the Swiss Stock Market," European Financial Management, European Financial Management Association, vol. 14(5), pages 962-988, November.
    9. Marina Balboa & J. Carlos Gómez‐Sala & Germán López‐Espinosa, 2009. "The Value of Adjusting the Bias in Recommendations: International Evidence," European Financial Management, European Financial Management Association, vol. 15(1), pages 208-230, January.
    10. Machado, André & Lima, Fabiano Guasti, 2021. "Sell-side analyst reports and decision-maker reactions: Role of heuristics," Journal of Behavioral and Experimental Finance, Elsevier, vol. 32(C).
    11. Paul Asquith & Michael B. Mikhail & Andrea S. Au, 2002. "Information Content of Equity Analyst Reports," NBER Working Papers 9246, National Bureau of Economic Research, Inc.
    12. Savor, Pavel G., 2012. "Stock returns after major price shocks: The impact of information," Journal of Financial Economics, Elsevier, vol. 106(3), pages 635-659.
    13. Serkan Karadas & Jorida Papakroni, 2019. "Local predictive ability of analyst recommendations," Review of Financial Economics, John Wiley & Sons, vol. 37(3), pages 351-371, July.
    14. Asquith, Paul & Mikhail, Michael B. & Au, Andrea S., 2005. "Information content of equity analyst reports," Journal of Financial Economics, Elsevier, vol. 75(2), pages 245-282, February.
    15. Stefano Bonini & Laura Zanetti & Roberto Bianchini & Antonio Salvi, 2010. "Target Price Accuracy in Equity Research," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(9‐10), pages 1177-1217, November.
    16. Chen Su & Hanxiong Zhang & Robert S. Hudson, 2020. "The time‐varying performance of UK analyst recommendation revisions: Do market conditions matter?," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 29(2), pages 65-89, May.
    17. Alastair Marais, 2024. "Audit Quality and Financial Statement Manipulation: The Moderating Effect of Tone at the Top," International Journal of Economics and Financial Issues, Econjournals, vol. 14(5), pages 220-232, September.
    18. Chang-Yi Hsu & Jean Yu & Shiow-Ying Wen, 2013. "The Analysts' Forecast of IPO Firms during the Global Financial Crisis," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 673-682.
    19. Albert, Robert Jr. & Smaby, Timothy R., 1996. "Market response to analyst recommendations in the "dartboard" column: the information and price-pressure effects," Review of Financial Economics, Elsevier, vol. 5(1), pages 59-74.
    20. Adria Pop & Jan Sporer & Siegfried Handschuh, 2024. "The Structure of Financial Equity Research Reports -- Identification of the Most Frequently Asked Questions in Financial Analyst Reports to Automate Equity Research Using Llama 3 and GPT-4," Papers 2407.18327, arXiv.org.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:abg:anprac:v:15:y:2011:i:4:873. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Information Technology of ANPAD (email available below). General contact details of provider: http://anpad.org.br .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.