پوشش تحلیلگر، مدیریت درآمد و توسعه مالی: یک مطالعه بین المللی

Using data from 21 countries, this paper analyzes the relation among analyst coverage, earnings management and financial development in an international context. We document that the effectiveness of financial analysts as monitors increases with a country’s financial development (FD). We find that in high-FD countries, increased within-firm analyst coverage results in less earnings management. Such is not the case in low-FD countries. Our results are economically significant and robust to reverse causality checks. Our findings illustrate one mechanism through which financial development mitigates the cost of monitoring firms and curbs earnings management.

A large body of research explores the differences between financial systems worldwide and documents the positive effects of financial development: It boosts industry growth, the formation of new establishments, and capital allocation (Beck and Levine, 2002). It predicts capital accumulation and productivity improvements (Levine and Zervos, 1998). It is especially important for firms that depend on external financing (Demirgüç-Kunt and Maksimovic, 1998 and Rajan and Zingales, 1998). While the benefits of financial development appear to be well established, the detailed mechanisms through which these benefits are brought to bear are still largely unknown. Levine (1997) lists five basic functions of a financial system: (1) to facilitate risk sharing; (2) to allocate resources; (3) to monitor managers; (4) to mobilize savings; and (5) to facilitate the exchange of goods and services. Our paper’s contribution is to focus on the monitoring function; specifically, on financial analysts as monitors of firms. We find that higher financial development is associated with a greater effectiveness of monitoring by financial analysts. Using a sample of 21 countries from 1994 to 2002, we find that in countries with highly developed financial systems (hereafter “high-FD countries”), increased within-firm coverage results in less earnings management. Such is not the case in countries with less well-developed financial systems (hereafter “low-FD countries”).

more effective monitors in high-FD countries. The greater effectiveness of financial analysts in high-FD countries may facilitate companies’ access to outside finance. Hence, a two-way relationship may exist between financial development and the effectiveness of monitoring by analysts. Financial development promotes the effectiveness of analyst monitoring. In turn, the quality of analyst monitoring fosters financial development by facilitating firms’ access to outside finance. Our results show the heterogeneity of financial development (e.g., within Europe) has an impact on the effectiveness of analysts’ monitoring function even after controlling for other firm fixed effects.