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|Title:||Peer performance and earnings management||Authors:||Du, Qianqian
|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.||URI:||https://hdl.handle.net/10356/90120
|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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