Analysts' Forecast Revisions and Errors around Executive Turnover : Do Japanese Firms Manage Earnings around Turnovers?

2005 Fiscal Year Final Research Report Summary

• Project/Area Number: 15530296
• Research Category: Grant-in-Aid for Scientific Research (C)
• Allocation Type: Single-year Grants
• Section: 一般
• Research Field: Accounting
• Research Institution: Gakushuin University (2005); University of Tsukuba (2003-2004)
• Principal Investigator: KANEDA Naoyuki Gakushuin University, Faculty of Economics, Associate Professor, 経済学部, 助教授 (80344860)
• Project Period (FY): 2003 – 2005
• Keywords: earnings management / executive turnovers / analysts forecasts / Japanese corporations / financial accounting / corporate governance / コーポレート・ガバナンス

Research Abstract

Existing literature about earnings management examine the accounting variables to find the earnings management. We take an indirect approach by examining the earnings expectation change around CEO turnover for Japanese firms. We found the significant results of forecast revisions for firms where CEOs are replaced by outsiders. Our results might imply that managements manipulate earnings downward when CEOs are replaced by outsiders.
We examine the relation between financial distress and the credibility of earnings forecast made by Japanese corporations. We confirm that the distressed firms tend to make more optimistic forecasts than non-distressed firms. On the other hand, we find evidence that analysts do not take this bias into account in their own earnings forecasts.
We examine factors influencing the voluntary disclosure contained in the annual reports and the other investor relations' information of Japanese corporations listed on Mothers and Jasdaq stock market. Firm's size, stock market listing, profitability and, analyst following are the most important factors explaining voluntary disclosures overall.