Peer Effects in Corporate Earnings Management

Item Type Conference or Workshop Item (Paper)
Abstract

We show that peer firms play an important role in shaping corporate earnings management de-cisions. To overcome identification issues in isolating peer effects, we use fund flow-induced selling pressure by passive open-end equity mutual funds as exogenous shocks to firms’ stock prices. Managers respond to such exogenous price shocks by adjusting earnings management policies. We then measure individual firms’ reactions to changes in earnings management at peer firms as a result of such exogenous price shocks. The documented peer effect in earnings management is not only statistically, but also economically significant. Our results are robust to alternative measures of fund flow-induced selling pressure and earnings management, and to estimating instrumental variables regressions in which we instrument peer firms’ earnings man-agement with mutual fund flow-induced selling pressure.

Authors Schmid, Markus
Language English
Subjects business studies
economics
finance
HSG Classification contribution to scientific community
Date 2017
Event Title DGF Conference 2017
Event Location Ulm University
Event Dates 06.-07.10.2017
Depositing User Beatrix Kobelt-Glock
Date Deposited 18 Oct 2017 12:49
Last Modified 12 Oct 2018 11:48
URI: https://www.alexandria.unisg.ch/publications/252321

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Citation

Schmid, Markus: Peer Effects in Corporate Earnings Management. 2017. - DGF Conference 2017. - Ulm University.

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https://www.alexandria.unisg.ch/id/eprint/252321
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