Investor Sentiment and Earnings Management: Does Analysts’ Monitoring Matter?

Miranda, Kléber Formiga; Machado, Márcio André Veras; Macedo, Luciana Alencar Firmo

doi:10.1590/1678-6971/eramf180104

Cited by 12 publications

(18 citation statements)

References 51 publications

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“…Previous studies suggest that EM practices increase during optimistic moments, yet firms monitored by analysts are more prone to restrain this behaviour. Our findings aligns with Miranda et al (2018); Yu (2008), who also find greater analysts following to constrain EM activity yet is at odds with Enomoto et al (2015)'s mixed market study where a similarly significant relationship was not found.…”

Section: Robustness Checkssupporting

confidence: 80%

Earnings Management in Frontier Market: Do Institutional Settings Matter?

2021

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We analyse whether differences in earnings management practices in frontier countries can be explained by institutional settings, considering their diverse corporate governance environments, legal regimes, and accounting standards. Across 22 frontier market countries from 2000–2017, we find that financial disclosure, legal environments, and the number of analysts following to be correlated with reduced levels of earnings management (EM). The impact of wealth, GDP growth, firm size, and the use of Big-4 auditors were also associated with reduced EM. Contrary to developed markets and novel to this study, higher levels of societal trust failed to show significance in its ability to constrain EM, suggesting informal institutions are less influential as control monitors. Findings herein verify that the factors that moderate EM are not universally applicable, and help highlight international differences in the management of earnings.

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Section: Robustness Checkssupporting

confidence: 80%

Earnings Management in Frontier Market: Do Institutional Settings Matter?

2021

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“…maximizing fundamental value and maximizing the current stock price). In view of this, Miranda et al (2018) opined that investor sentiment deserves attention, as it has an association with earnings management. Catering theory states that prior literature has documented various effects of investor sentiments in making corporate decisions including corporate disclosures and dividend payouts (Gores et al, 2015), as well as corporate policies (Baker and Wurgler, 2011).…”

Section: Investor Sentimentmentioning

confidence: 99%

“…According to Simpson (2013) and Ali and Gurun (2009), literature has reported a positive association between investor sentiment and also earnings management. Additionally, Miranda et al (2018) also premised that higher investor sentiment tends to result in a higher level of earnings management.…”

Section: Investor Sentimentmentioning

confidence: 99%

Earnings management: a strategic adaptation or deliberate manipulation?

Baskaran

Nedunselian

et al. 2020

JFC

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Purpose This study aims to clarify the relationship between ethical orientation and earnings management perception phenomenon in the organization. It discusses to what extent earnings management is considered as a strategic adaptation or deliberate manipulation in an organization. The study also aims to expand the domain of ethical perspective of earnings management by considering mediating and moderating role of investor sentiment and corporate social responsibility (CSR) as inward pressure and outward commitment surrounding the organization, adopting a combined perspective of strategic management and also accounting discipline than is normally found in the ethics and earnings management literature. Design/methodology/approach The study opted for literature synthesis to define key concepts surrounding ethics and earnings management perception in the organization. Besides, it attempted to identify influential mediators and moderators in explaining the earnings management phenomenon in the organization. Consequently, the study identified the gaps in current research to draw upon a more holistic conceptual framework. The rationale for the research was justified within the body of research. Findings The study suggested research propositions based on the literature synthesis in view of ethics and earnings management perception in the organization. More specifically, it has proposed a conceptual framework, explaining the relationship between ethical orientation and a multi-dimensional view of earnings management perception. It is envisaged that the mediating and moderating role of investor sentiment and CSR incorporated in this conceptual study will improve the predictive value of the proposed framework and offer additional insights about factors that inhibit or advance ethical orientation and earnings management practices in the organization. Research limitations/implications This paper suffers from the obvious limitation of lacking empirical investigation. However, it does provide a theoretical rationale for the argument that alteration of earnings can be controlled if ethical orientation is emphasized in the organization apart from insulating internal and external pressures to manage such phenomenon from happening in the organization. Perhaps, the most important direction for future research is further extension and validation of this framework by performing an empirical investigation to produce newer insights into this phenomenon. Originality/value This conceptual study is different from previous studies on the grounds it has considered unexplored issues linking inward pressures and outward commitments in explaining this phenomenon further. To bridge the critical knowledge gap of earnings management phenomenon, a mediating effect of investor sentiment as an inward pressure and a moderating role of CSR as an outward commitment are also integrated within the model. The proposed model neither formulated nor tested empirically in previous studies locally or, perhaps, globally, therefore, stands out as an original contribution in the study of ethical orientation and earnings management perception.

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“…Studies investigating investor sentiment in Brazil have sought to analyze its impact considering different aspects, such as its relationship with the trading volume (Marschner & Ceretta, 2019) and with market anomalies (Xavier & Machado, 2017), as well as its impact on accounting aspects such as earnings management, considering the moderating role of analysts (Miranda, Machado, & Macedo, 2018), and accruals quality (Santana, Santos, Carvalho, & Martinez, 2020). The results confirm that investor sentiment influences accounting aspects and the market phenomena in Brazil, as can be observed in more developed countries.…”

Section: Previous Studies and Research Hypothesismentioning

confidence: 99%

Asymmetric Impact of Investor Sentiment on Brazilian Stock Market Volatility

Ferreira

Machado

Silva

2021

RAM, Rev. Adm. Mackenzie

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Purpose: The purpose of this study was to analyze the effect of investor sentiment on the volatility of the Brazilian stock market. Specifically, it aimed to identify if the asymmetric behavior of sentiment could be observed in emerging markets, considering companies that have characteristics that are difficult to price. Originality/value: Unlike most studies on investor sentiment, this study focuses on its impact on the stock market volatility, as well as on the characteristics of companies associated with difficult pricing. Design/methodology/approach: The volatility of the IBRX100 index was used to represent the Brazilian stock market, and as a proxy for investor sentiment it was selected Miranda's index (2018), based on market data. Data were estimated using the two-stage least squares (MQ2E) technique to address endogeneity problems. Finally, the volatility of companies with difficult-to-price characteristics was segregated to analyze their sensitivity to sentiment. Findings: The results indicate that sentiment has a negative and sig nificant relationship with the volatility of the Brazilian market, as well as evidences an asymmetrical behavior, being statistically stronger in pessimistic periods. Additional analyzes evidence that the explanatory sentiment capacity is sensitive to companies' characteristics, but only companies with a high book-to-market ratio showed asymmetric behavior, as expected by the literature. The portfolios segmented by size and illiquidity maintained an asymmetric behavior, but it was the volatility of the large companies and the less illiquid ones that were best explained by sentiment, indicating that the Brazilian market has distinctive characteristics in relation to developed markets.

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Investor Sentiment and Earnings Management: Does Analysts’ Monitoring Matter?

Cited by 12 publications

References 51 publications

Earnings Management in Frontier Market: Do Institutional Settings Matter?

Earnings Management in Frontier Market: Do Institutional Settings Matter?

Earnings management: a strategic adaptation or deliberate manipulation?

Asymmetric Impact of Investor Sentiment on Brazilian Stock Market Volatility

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