Title: Does analyst coverage enhance or curb earnings management? The impact of mandatory IFRS adoption

Authors: Mohammad Issa Almaharmeh

Addresses: Department of Accounting, Faculty of Business, The University of Jordan/Aqaba, P.O. Box 2595, Aqaba 77111, Jordan

Abstract: This study aims to investigate the effect of external corporate governance mechanisms on earnings management decisions. In particular, this study examines the effect of analyst coverage on the magnitude of discretionary accruals in the UK context. In addition, this study examines the moderating role of mandatory International Financial Reporting Standards (IFRS) adoption on the relationship between analyst coverage and earnings management. By using a sample of 9,165 observations collected from 1,401 specific UK firms from 1994-2013, it is found that a high level of analyst coverage can be considered as an external governance mechanism that controls managers' behaviours. The results suggest a significant negative effect of analyst coverage on earnings management. I also find some evidence that the mandatory adoption of IFRS does lead to lower earnings management levels. Contrary to expectations, IFRS fails to enhance the monitoring role of financial analysts in detecting and deterring earnings management.

Keywords: analyst coverage; IFRS; earnings management.

DOI: 10.1504/IJMP.2022.121150

International Journal of Management Practice, 2022 Vol.15 No.2, pp.253 - 277

Received: 24 Mar 2020
Accepted: 21 Jan 2021
Published online: 28 Feb 2022 *

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