Transformations  in
Business & Economics

ANALYST FOLLOWING AND EARNINGS MANAGEMENT: MEDIATION EFFECT OF MANAGERIAL OVERCONFIDENCE
Lina Yan, Yuhui Dai, Xia Qiu

ABSTRACT. Analyst following is an important external supervision mechanism that restricts earnings management of listed companies, but the influencing mechanism remains unclear. To explore the influencing mechanism of analyst following on the earnings management, using the data of Chinese A-share listed companies in 2009-2017 and multiple regression methods of Fama-Macbeth and Probit, the effects of analyst following on earnings management, and the mediating role of managerial overconfidence on the relationship between analyst following and earnings management were analyzed. Results indicate that analyst following reduces earnings management of listed companies by constraining managerial overconfidence, which plays a mediating role. The influence of analyst following on reducing earnings management is more significant in state-owned companies than in nonstate-owned companies.
In addition, asset-liability ratio and growth rate present significant positive correlations with the company's earnings management, whereas the company's scale and growth present negative correlations with earnings management. The conclusions extend the research boundary of influence factors of earnings management and provide a theoretical reference and decision-making basis for perfecting the governance mechanism of listed companies and power constraint of their managers. 

KEYWORDS:  earnings management; analyst following; managerial overconfidence; mediation effect.

JEL classification:  O16, M41, C33, M12.