How Does Media Affect Earnings Management? New Evidence from Commonality in News

56 Pages Posted: 24 Jan 2018 Last revised: 20 Oct 2018

See all articles by Chen Chen

Chen Chen

Monash University - Department of Accounting

Thanh Huynh

Monash University - Department of Banking and Finance; Cbus Super Fund

Tao Tao

Monash University - Department of Accounting

Date Written: January 23, 2018

Abstract

Building on the theoretical framework of Heinle and Verrecchia (2016) and the pioneering empirical study of Dang, Moshirian, and Zhang (2015), this paper investigates whether and how commonality in news can influence managers’ incentives to engage in earnings management. We find strong evidence that news commonality reduces managerial incentives to manage earnings. Employing a quasi-natural experiment, we provide plausibly causal evidence that the media can curb earnings management via reporting correlated news between a firm and other firms in the market. This effect is more pronounced among firms that are similar to each other and whose information environment is opaque. We further find that stocks with higher news commonality have smaller earnings response coefficients. These results together suggest that shareholders assign less weight to a firm’s earnings report when they can learn about the firm’s value using the information of other firms, thereby reducing the benefits for managers to engage in earnings management.

Keywords: media; news commonality; financial reporting quality; earnings management

JEL Classification: G30; M41; M43

Suggested Citation

Chen, Chen and Huynh, Thanh D. and Tao, Tao, How Does Media Affect Earnings Management? New Evidence from Commonality in News (January 23, 2018). Asian Finance Association (AsianFA) 2018 Conference, Available at SSRN: https://ssrn.com/abstract=3108172 or http://dx.doi.org/10.2139/ssrn.3108172

Chen Chen

Monash University - Department of Accounting ( email )

Building H, Level 3
Caulfield campus
Melbourne, Victoria 3800
Australia

Thanh D. Huynh

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Cbus Super Fund ( email )

130 Lonsdale Street
Melbourne, Victoria 3000
Australia

Tao Tao (Contact Author)

Monash University - Department of Accounting ( email )

H3.43, Building H, Level 3
Monash University Caulfiled
Melbourne, VIC 3145
Australia

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
128
Abstract Views
519
Rank
317,448
PlumX Metrics