The impact of the financial press on accrual anomaly and earnings management

Abstract

This dissertation consists of two essays investigating the impact of news released in the financial press on accrual anomaly and earnings management. Sloan (1996) shows earnings announcements to be information events driving the correction process of the mispricing of accruals. The first essay focuses on news released in the financial press as an additional driver of the correction process. Using 83,016 Wall Street Journal news articles from 1993 to 2006, I find that in addition to earnings announcements, news in the financial press also reveals valuable information for the correction of accruals mispricing. Prior studies have documented that the existence of information asymmetry between managers and shareholders creates an information environment conducive to earnings management. In the second essay, I investigate the impact of news coverage on earnings management by classifying news articles into two distinct types of news: earnings-related News (EN) and non-earnings-related news (NEN). Based on 48,972 news items reported in the Wall Street Journal and 32,177 firm-years for firms traded on the NYSE/AMEX/NASDAQ between 1994 and 2004 fiscal-years, I find that NEN is positively related to the degree of information asymmetry, whereas EN is negatively related. More importantly, I find that NEN, which increases information asymmetry, is positively associated with earnings management, while EN, which reduces information asymmetry, is negatively associated. The results also show that these associations of NEN and EN with earnings management are more profound for firms engaging in income-increasing earnings management and for large-size firms. This dissertation improves the understanding of the role of financial press as an information intermediary in capital markets.%%%%%%%%