JultikaUniversity of Oulu repository

The object of this thesis is to investigate the tool of earnings management firms use to meet analysts’ forecasts and then provide evidence for setting slightly meet and slightly miss as indicator of earnings management. Managers have sort of incentives to meet analysts’ forecasts. In the prior literature, managers have more motivations to meet analysts’ forecasts through earnings management than real activities. I argue that managers will manipulate discretionary accruals in order to beat analysts’ forecasts. And I also argue that slightly meet and slightly miss could be an indicator of earnings management. In the empirical examination, I use discretionary accrual as proxy of earnings management and recalculate it using Jones (1991). Meet analysts’ forecasts are calculated as the difference between actual EPS and forecasts EPS. A frequency test of Meet is presented as well. The result show: (1) Frequency table gives a higher frequency in slightly beat analysts’ forecasts than other situations. (2) A significant positive correlation between slightly meet and miss and discretionary accrual, which capture that if firm try to get close to analysts’ forecast, the discretionary accruals will inceases. This significant correlation also gives strong support to set slightly meet and miss as an indicator of earnings management.