Audit Quality and the Trade-Off between Accretive Stock Repurchases and Accrual-Based Earnings Management

ABSTRACT We examine whether audit quality affects the trade-off between accrual-based and real earnings management. We hypothesize that firms motivated to manage earnings per share (EPS) to meet or beat consensus analysts' forecasts are more likely to engage in accretive stock repurchases (a form of real earnings management) when their ability to manage earnings through accruals is constrained by high audit quality. We find that firms with high audit quality are more likely to use accretive stock repurchases and less likely to use accrual-based earnings management to meet or beat consensus analysts' forecasts. Our results are robust to various controls for endogeneity concerns.

The Impact Of Options Listing Upon The Optimistic Bias In Analysts Quarterly Earnings Forecasts

We provide evidence that firms options listing increases the divergence of analysts opinions and, at the same time, leads to a reduction in the systematic optimistic bias in an important element of the market expectation of earnings, analysts consensus earnings forecasts. Our contribution is added insight into how the increased divergence of analysts opinions following options listing drives a reduction of systematic optimistic bias in consensus analysts forecasts.

International Diversification and Analysts' Forecast Accuracy and Bias

We investigate the association between corporate international diversification and the accuracy and bias of consensus analysts' earnings forecasts. We find that greater corporate international diversification is associated with less accurate and more optimistic forecasts. Our results suggest that international diversification reflects unique dimensions of forecasting difficulty that are not captured in previously identified determinants. This evidence suggests that as firms become more geographically diversified, forecasting their earnings becomes more complex.