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Title: Peer performance and earnings management
Authors: Du, Qianqian
Shen, Rui
Keywords: DRNTU::Business::Management
Earnings Management
Peer Performance
Issue Date: 2018
Source: Du, Q., & Shen, R. (2018). Peer performance and earnings management. Journal of Banking & Finance, 89, 125-137. doi:10.1016/j.jbankfin.2018.01.017
Series/Report no.: Journal of Banking & Finance
Abstract: This paper studies how peer performance affects firms’ earnings management decisions. Using peer firms’ idiosyncratic returns as an exogenous peer performance measure and the instrumental variable approach, we find that higher peer performance leads to higher discretionary accruals. This effect is salient for both industry leaders and followers and is robust to alternative discretionary accrual measures and alternative peer definitions. We examine two mechanisms through which peer performance affects firms’ earnings management. We find that analysts revise their earnings forecasts according to peer performance and that when peer performance is higher, firms are less likely to meet or beat analyst consensus without managing earnings. This evidence suggests a capital market pressure mechanism. In addition, the effect of peer performance is more pronounced in firms using relative performance evaluation, suggesting a compensation pressure mechanism. In sum, our evidence suggests that managers report opportunistically to match peer performance.
ISSN: 0378-4266
DOI: 10.1016/j.jbankfin.2018.01.017
Rights: © 2018 Elsevier B.V. All rights reserved. This paper was published in Journal of Banking & Finance and is made available with permission of Elsevier B.V.
Fulltext Permission: open
Fulltext Availability: With Fulltext
Appears in Collections:NBS Journal Articles

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