Title: Long-term analysts' forecasts and real earnings management

Authors: Wael Aguir; Carroll H. Griffin; Linxiao Liu; Zhenfeng Liu

Addresses: Department of Accounting, Lutgert College of Business, Florida Gulf Coast University, Fort Myers, FL 33965, USA ' Georgia Gwinnett College, Lawrenceville, GA 30043, USA ' Department of Accounting and Finance, University of West Georgia, 1601 Maple Street, Carrollton, GA, 30118, USA ' School of Management, University of Michigan-Flint, Flint, MI, 48502, USA

Abstract: This paper investigates the implications of earnings manipulations through real activities for financial analysts. In particular, it examines the extent to which analysts consider the effects of real earnings management on company performance when they make long-term earnings growth projections. Our results show analysts issue lower long-term earnings growth forecasts for firms with higher levels of real earnings management. In addition, we find analysts produce less accurate long-term earnings forecasts in the presence of real activities manipulation, and that the forecast bias increases with the level of real earnings management. Our results from the sensitivity tests confirm our findings that financial analysts are able to recognise real earnings management and penalise firms that engage in it when they issue long-term earnings growth forecasts.

Keywords: long-term analysts' forecasts; analysts forecasts; earnings growth forecasts; earnings management; real earnings management.

DOI: 10.1504/IJAAPE.2023.134924

International Journal of Accounting, Auditing and Performance Evaluation, 2023 Vol.19 No.4, pp.510 - 536

Received: 09 Feb 2022
Received in revised form: 30 Dec 2022
Accepted: 30 Jan 2023
Published online: 21 Nov 2023 *

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