Does Analyst Following Curb Earnings Management? International Evidence

We investigate the role of analyst following as a monitoring device reducing earnings management. In a large international sample, we fi nd that the more transparent the country, the stronger the reduction in earnings management activity associated with analyst following. More transparent countries also exhibit more evidence of earnings management to reach the analyst consensus, but this cost is more than offset by the benefi t of transparency to the effectiveness of analyst monitoring. In opaque countries, analyst following does not act as a curb on total earnings management, but neither does it create any short-term pressure to manage earnings.