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This study aims to examine whether Chinese firms increase their concerns about analysts’ earnings forecasts following the split-share structure reform (SSR) in 2005, which removed trading restrictions on approximately 70% of the shares of listed firms.

Using data from 2002 to 2019, the authors empirically test the association between meeting or beating analysts’ earnings expectations and the implementation of SSR.

The authors find that firms are more inclined to meet analysts’ earnings expectations after the introduction of SSR. Further analysis shows that firms guide analysts to walk their forecasts down by manipulating third-quarter earnings, suggesting enhanced value relevance between analysts’ forecasts and third-quarter earnings management in the postreform period.

The findings reveal an undesirable side effect of SSR and suggest that policymakers and regulators should consider and carefully manage the complex relationships between firms and analysts.

In contrast to prior studies that predominantly focus on the positive effects of the reform, this study reveals the side effects of SSR and provides new evidence on the mechanisms of meeting or beating analysts’ earnings expectations.

The authors provide a general framework of behavior under asymmetric information and develop indices of diligence, objectivity and quality by an analyst and analyst firm about a studied firm, and relate them to the accuracy of its forecasts. The authors test the associations of these indices with time.

The test of Public Information versus Non-Public Information Models provides the index of diligence, which equals one minus the p-value of the Hausman Specification Test of Ordinary Least Squares (OLS) versus Two Stage Least Squares (2SLS). The test of Objectivity versus Non-Objectivity Models provides the index of objectivity, which equals the p-value of the Wald Test of zero coefficients versus non-zero coefficients in 2SLS regression of the earnings forecast residual. The exponent of the negative of the standard deviation of the residuals of the analyst forecast regression equation provides the index of analytical quality. Each index asymptotically equals the Bayesian ex post probability, by the analyst and analyst firm about the studied firm, of the relevant behavior.

The authors find that ex post accuracy is a statistically and economically significant increasing function of the product of the indices of diligence, objectivity and quality by the analyst and analyst firm about the studied firm, which asymptotically equals the Bayesian ex post joint probability of diligence, objectivity and quality. The authors find that diligence, objectivity, quality and accuracy did not improve with time.

There has been no previous work done on the systematic and objective characterization and joint analysis of diligence, objectivity and quality of analyst forecasts by an analyst and analyst firm for a studied firm, and their relation with accuracy. This paper puts together the frontiers of various disciplines.

This study examines whether a firm’s management earnings forecasts affect its technical innovation activities. Our study also examines whether the cost of debt plays a mediating role between the management earnings forecasts and the innovation nexus.

We obtained data from 1,032 Chinese non-financial firms listed on the Shanghai and Shenzhen stock markets from 2005 to 2022 (i.e. 18,576 firm-year observations). We used various econometrics techniques, such as Heckman’s (1979) two-stage selection method and two-stage least square, to examine the relationship between management earnings forecasts and the firm’s technical innovation activities.

We find a positive relationship between management earnings forecasts and the firms' technical innovation. We also find that the cost of debt mediates the relationship between management earnings forecast and technical innovation. Further analysis indicates that frequent earnings forecasts provide incremental information regarding a firm’s future value and cash flows, thus reducing the volatility and uncertainty in cash flow calculations. Our findings are robust to several tests.

Our study has implications for policymakers, practitioners and high-level management of Chinese firms, enabling them to understand the relationship between management earnings forecasts and firms' innovation activities.

Both the SEC (Securities and Exchange Commission) and the popular press have routinely criticized firms for the complexity of their financial disclosures. This study aims to investigate how financial analysts respond to the tone complexity of firm disclosures.

Using approximately 20,000 earnings conference call transcripts of S&P 1,500 firms between 2005 and 2015, the authors first calculate the abnormal negative tone, the measure of tone complexity; then use such tone measure in econometric models to examine analyst forecast behavior. The authors also test the robustness of the results under different model specifications, tone word lists and alternative tone measure calculations.

Consistent with the notion that analysts respond to the information demand from investors and incur more costs and effort to analyze firm disclosure when the tone is more complex, the authors find that higher tone complexity is positively and significantly associated with more analyst following, longer report duration, more forecast revisions, larger forecast error and larger forecast dispersion. In addition, the authors find that tone complexity has a long-term impact on analyst following but has a limited long-term impact on analyst report duration, analyst revision, forecast error and dispersion.

This study complements existing literature by highlighting the information role of financial analysts and by providing evidence that analysts incorporate the management tone disclosed during conference calls to adjust their forecasting behaviors. The results can be used by policymakers as evidence and support for further improving firm communication from a new dimension of disclosure tone.

This paper examines how board structure influences real earnings management and the interaction effect of CEO narcissism on board structure-real earnings management relationship.

The authors used panel data derived from secondary sources from publicly listed firms in Kenya during 2002–2017. Hierarchical regression analysis was used to test the hypotheses.

The results indicate that board independence, board tenure and size have significant negative effect on real earnings management, while CEO duality positively affects real earnings management. Further, the interaction results show that CEO narcissism moderates the relationship between CEO duality and real earnings management.

The results suggest that real earnings management reduces when boards are independent, large and comprising of long-tenured members. However, when the CEO plays dual role of a chairman, real earnings management increases. The authors also find that when CEOs are narcissists, the monitoring role of the board is compromised.

The study adds value to the understanding of how board structure and CEO narcissism influence the monitoring role of the board among firms listed at Nairobi Securities Exchange.

This paper aims to examine whether firms meeting or just beating an earnings benchmark engage in tone management in earnings conference calls to complement earnings management in the UK context. It also investigates whether the audience tone in beating or just meeting earnings fails to predict future performance.

This study was performed using a sample of non-financial UK firms listed in the FTSE 350 index over the period 2010–2015.

The findings show that firms that exercise more earnings management to meet or just beat earnings are positively associated with the abnormal tone during earnings conference calls. The outcomes also reveal that the audience’s tone of firms meeting or just beating an earnings benchmark fails to predict future performance. This confirms the effectiveness of the tone management in managing the perception of audience.

This study highlights the need for increased accountability by firms on earnings conference call. It also supports academics and practitioners in understanding the management discretion used in reporting and communication during the earnings conference call. Overall, the results of this study are beneficial for regulators, policymakers and professionals, regarding confirming the need for the earnings conference calls to be regulated.

To the best of the authors’ knowledge, this is the first study that examines the association between earnings management and tone management in the UK earnings conference calls. It adds to the existing literature by examining the self-serving behaviour of managerial tone during earnings conference calls within a sitting in which meeting or just beating a benchmark is used. Unlike several studies that explain the behaviour of tone as a signalling strategy, this study reveals that the tendency of impression management behaviour can explain the tone management.

Corporate donation behavior sends two financial-related signals, i.e. sufficient cash flow and self-confidence in future earnings. This paper aims to investigate whether these financial-related signals released by corporate donation drive investors to make more optimistic forecasts about the firm’s future earnings per share (EPS) and whether this effect varies across different historical earnings trends.

This study is based on a controlled online experiment with 553 MBA students.

The results demonstrate that a financial signaling mechanism works, but it is moderated by historical earnings trends. When the earnings trend is always increasing, the more the number of financial signals received, the higher the investors’ EPS forecast; when the earnings trend is fluctuating (down then up or up then down), investors’ EPS forecast is higher when they receive financial signal(s) than when they do not, but no additive effect occurs from receiving one signal to two signals; when the earnings trend is always decreasing, investors’ EPS forecast is irrelevant to the number of financial signals received.

To the best of the authors’ knowledge, this study is the first to experimentally investigate a possible mechanism to explain investors’ positive response to corporate social responsibility (CSR) (specifically, corporate donation) disclosures – the financial signaling mechanism. This study also extends the research on the impact of financial information on investors’ use of nonfinancial information by investigating the moderating role of historical earnings trends on the financial signaling mechanism of the CSR effect.

Surprisingly little is known of the various methods of security analysis used by financial analysts with industry-specific knowledge. Financial analysts’ industry knowledge is a favored and appreciated attribute by fund managers and institutional investors. Understanding analysts’ use of industry-specific valuation models, which are the main value drivers within different industries, will enhance our understanding of important aspects of value creation in these industries. This paper contributes to the broader understanding of how financial analysts in various industries approach valuation, offering insights that can be beneficial to a wide range of stakeholders in the financial market.

This paper systematically reviews existing research to consolidate the current understanding of analysts’ use of valuation models and factors. It aims to demystify what can often be seen as a “black box”, shedding light on the valuation tools employed by financial analysts across diverse industries.

The use of industry-specific valuation models and factors by analysts is a subject of considerable interest to both academics and investors. The predominant model in several industries is P/E, with some exceptions. Notably, EV/EBITDA is favored in the telecom, energy and materials sectors, while the capital goods industry primarily relies on P/CF. In the REITs sector, P/AFFO is the most commonly employed model. In specific sectors like pharmaceuticals, energy and telecom, DCF is utilized. However, theoretical models like RIM and AEG find limited use among analysts.

This is the first paper systematically reviewing the research on analyst’s use of industry-specific stock valuation methods. It serves as a foundation for future research in this field and is likely to be of interest to academics, analysts, fund managers and investors.

This study examines how bilateral international trade among mandatory International Financial Reporting Standards (IFRS) adopter countries moderates the relation between IFRS adoption and firms’ financial reporting quality.

The authors use data from 2007 to 2015 and focus on publicly listed firms from non-European Union countries that adopted IFRS on a mandatory basis.

The authors find that the interaction between mandatory IFRS adoption and a country’s bilateral trade with other countries using IFRS is negatively and significantly related to accruals-based earnings management, which is an inverse measure of financial reporting quality. This result is driven by firms in less developed countries. The improvement in accounting quality is for firms located in countries that both fully and partially adopt IFRS. The authors also find a significant and negative coefficient for the relation between real earnings management and the interaction between mandatory IFRS adoption and a country’s bilateral trade with other IFRS countries in the post-global financial crisis period.

Overall, the authors’ results are consistent with the notion that the mandatory adoption of IFRS creates a positive externality where firms improve their accounting quality because increased financial statement comparability means that foreign customers and suppliers can monitor the quality of earnings more easily.

This study aims to investigate the effect of income and asset diversification on earnings management using discretionary loan loss provisions (LLP) in banks, and the role of risk level in mediating this effect.

A sample of banks operating in Middle East and North Africa countries was used to test the mediation model of Baron and Kenny (1986) with different measures of diversification and risk.

The results show that bank income and asset diversification have unique and combined effects on earnings management. The results also support the idea that a risk-mediating effect contributes to explaining this relationship among banks. Specifically, bank diversification strategies positively affect LLP-based earnings management by increasing bank risk. This result is relevant for conventional banks. However, only a direct and positive effect of diversification strategies on LLP-based earnings management can be observed in Islamic banks, and the indirect effect is not supported.

This study extends previous research by examining the unique and combined effects of income and asset diversification strategies on earnings management in the banking sector. Specifically, it provides new evidence that diversification strategies increase LLP-based earnings management, both directly and indirectly, through bank risk.