Yu 2008 Sun 2009 Chen 2013 [2 4 5] 2006 [8] Berkowitz 2003 [9] Pistor 2011 [6] 2000 [10] Malmendier and Bhattacharya and Daouk 2006 [7] Shanthi

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1 Journal of Shanxi University of Finance and Economics /j.cnki F832.5 A Does Security Law Enforcement Strengthen Analysts role as External Monitors LIN Jing 1 ZHOU Ming-shan 2 DONG Zhi-yong 1 1.School of Economics, Peking University, Beijing ; 2.School of Finance, Southwestern University of Finance and Economics, Chengdu , China Abstract: The paper investigates the change of analysts role as external monitors around the event of the amendment of security law and its first execution after its getting effective. Using the sample from 2004 to 2015, we find that before the amendment of security law become effective and its first execution after its getting effective, analysts did not have any effect as external monitors. But after the event of law enforcement in 2007, analysts following significantly lowers the extent of earning management of listed companies, after considering the endogenous problem, empirical results lend further support to the above findings. We further find that the enforcement has a stronger effect on stars, meanwhile, the institutional investors exert influence on stars as performing monitoring. These findings strongly imply that law enforcement is more important than law itself. Key Words: security law enforcement; analyst; external monitor; earning management Malmendier and Shanthikumar 2007 [1] Yu [2 3]

2 Yu 2008 Sun 2009 Chen 2013 [2 4 5] 2006 [8] Berkowitz 2003 [9] Pistor 2011 [6] 2000 [10] Malmendier and Bhattacharya and Daouk 2006 [7] Shanthikumar 2007 Fang and Yasuda [1,11,12] Jensen and Meckling 1976 [13] Jensen and Meckling 1976 [13] Healy and Palepu 2001 [14] Yu 2008 [2] Fong et al [15] Lang et al [16] Sun 2009 [4] 98

3 2011 [3] H1b 2009 [17] Fang and Yasuda 2009 [11] 2011 [6] Xu et al [24] 2 H2a Ljungqvist et al [18,19] Cowen et al [20,21] H2b 2013 [21] 2005 [22] 2011 [23] 2011 [6] 3 H3a H1a H3b 99

4 AC i t ΔSR i t FA i t OLS A C2 C9 CSMAR α 赞 1 α 赞 2 α 赞 3 NDA i t NDA i t =α 赞 1 1 +α 赞 A 2 ΔSRi t - ΔAR i t +α 赞 FA i t 3 i t-1 A i t-1 A i t-1 A i t-1 2 ΔAR i t 2004 DA i t = AC i t -NDA i t 3 A i t-1 ADA DA ADA 2 Burgstahler and Dichev 1997 [29] 2005 [30] Yu 2008 [2] EMD 5% 0.05 EMD=1 EMD= ADA 2005 [30] 0.05 Jones Jones 1991 Dechow et 2. al Yu [25-28] Ana i t 2 OLS α 1 α 2 α 3 AC i t =α 1 1 +α ΔSR i t 2 +α FA i t 3 +ε i t 1 Star it A i t-1 A i t-1 A i t-1 A i t-1 NStar it i t A i t 100

5 3. C 2SLS Chang et al [31] BigD i BigD= [32] 2008 A B C 2 IndMeanAna Ind MeanStar IndMeanNonStar i Yu % 1 size MB ROA % GRA 0 5 CFV 1 6 IH 7 ADA GH 8 size EF MB DAC ROA GRA CFV % IH Winsorize GH EF Ana Star Nstar BigD EMD A B DAC

6 2 GH ADA % 6.89% ADA EF Ana % 3% -0.99% Star % 1 Nstar BigD EMD DAC Wilcoxon P ADA Size MB ROA GRA CFV IH ADA ADA Size MB ROA GRA CFV IH GH EF Ana Star Nstar BigD EMD DAC size MB ROA GRA CFV IH GH EF Ana Star Nstar Ana ADA 5.1% Star ADA 3.5% EMD ADA 2.9% EMD Ana -2.3% Star -3.1% 30.9% 29.3% 29.6% BigD EMD DAC

7 10% ADA Yu 2008 [2] 0.58% 1 OLS Ana i t =α+ M m=1 ρmctrlm i t + T γ t=1 tyear i t + N δnin- n=1 d i n +Res Ana i t 4 Ctrl 4 Year Ind Cluster Adjusted for firm-level clus- tering 4 Res Ana OLS ADA i t =α+βresana i t M m=1 ρmctrlm i t + T γ t=1 tyear i t + N δnind n=1 i n+ε i t 5 Ctrl Year Ind

8 EMD ADA EMD i t =α+β 1 ResAna i t +β 2 DAC i t + M ρmctrl m + m=1 i t T γ t=1 tyear i t + N δnind n=1 i n+ε i t Yu 2008 [2] DAC 6% H1a 5 Constant *** *** Res Ana Size MB *** *** Constant Res Ana *** *** Lag ROA *** DAC *** * 1.69 ROA Size GRA *** *** MB * CFV *** 9.32 ROA ** 2.21 IH GH EF *** *** *** *** Year Yes Yes Industry Yes Yes Sample Adj. R 2 % GRA CFV IH GH EF * ** **

9 Year Yes No Yes MB ** Constant *** *** *** *** Pre Ana BigD *** 2.46 Ind MeanAna Size Industry Yes Yes Yes Sample Adj. R 2 % CFV ** *** ** *** IH *** ** ** ** *** * 5 2SLS GH *** Ana i t =α+ρ 1 BigD i t +ρ 2 IndMeanAna i t + M m=1 ρmctrl m EF *** * *** *** i t + T γ t=1 tyear i t + N δnind Year Yes Yes No No Yes Yes n=1 i n+ε i t 7 Industry Yes Yes Yes Yes Yes Yes Ctrl 5 Sample SLS 5 Adj. R % 7 5% ADA 3.0% Yu 2008 [2] OLS ** * *** *** *** *** *** ROA GRA *** *** *** *** *** *** * *** *** * *** ΔADA i t =α +βδpreana i t + M ρmδctrl m + T m=1 i t t=1 γ t Year i t + N n=1 δ n Ind i n +ε i t 8 2SLS

10 8 ADA i t =α +β 1 PreAna i t +β 2 Law i t +β 3 Enforce i t + 1% β 4 PreAna i t *Law i t + β 5 PreAna i t *Enforcei t + M m=1 ρ m - Ctrl m i t N δnind n=1 i n+ε i t 9 Law Enforce Constant Pre Ana Size MB ROA GRA CFV IH GH EF *** *** * *** *** *** *** * 1.75 Year No Yes Industry Yes Yes Sample Pre Ana*law Pre Ana*Enforce 5% Constant BigD IndMeanAna Pre Ana Pre Ana*law Pre Ana*Enforce *** *** *** *** ** Adj. R 2 % Law *** Enforce *** Size *** *** MB ** ROA *** ***

11 GRA *** *** CFV *** 9.91 Constant *** *** *** *** IH *** *** BigD * * GH EF *** *** *** *** 7.14 Year effect Yes No IndMeanStar IndMeanNon- Star Pre Star *** *** *** *** Industry effect Yes Yes Sample Adj. R-sqr % Pre Star*law Pre Star*Enforce * * Pre NonStar *** *** SLS Pre NonStar*law Pre NonStar* Enforce SLS Law ** *** * Enforce *** *** *** % Size *** *** *** *** *** MB * ROA *** *** *** *** GRA *** *** *** *** *** H2a CFV *** *** *** IH *** *** *** *** *** GH *** *** *** *** *** EF *** *** *** *** *** Year effect Yes Yes No No No 107

12 Industry effect Yes Yes Yes Yes Yes Pre.Ana*Enforce * Sample Pre.Ana*IH 0.55 Adj. R-sqr % Pre.Ana*law*IH Pre.Ana*Enforce*IH Pre.Star *** ** SLS Pre.Star*law Pre.Star*Enforce Pre.Star*IH Pre Star*IH Pre.Star*law*IH * Pre.Star*Enforce*IH *** ** Pre Star*Enforce*IH Pre.NonStar Pre.NonStar*law Pre.NonStar*Enforce Pre.NonStar*IH Pre.NonStar*law*IH Pre.NonStar* Enforce*IH Law Enforce *** *** *** *** law*ih * Constant *** *** Enforce*IH *** ** *** Pre.Ana Size * *** *** 6.43 Pre.Ana*law MB

13 ROA GRA CFV IH GH EF *** *** *** *** ** *** *** *** *** *** *** *** *** *** *** Year effect No No No No Industry effect Yes Yes Yes Yes Sample Adj. R-sqr % Bhattacharya and Daouk 2006 [7] C0-C9 J M 3 73% Pre Star Pre Star*IH Pre Star*Enforce Pre Star*Enforce*IH 1 Malmendier, U. and D. Shanthikumar. Are Small Investors Na?ve about Incentives J. Journal of Financial Economics, 2007, Yu, FF. Analyst Coverage and Earnings Management J. Journal of Financial Economics, 2008, J Sun, J. Governance Role of Analyst Coverage and Investor Protection J. Financial Analysts Journal, 2009, Chen, T., J. Harford and C. Lin. Do Analysts Matter for Governance? Evidence from Natural Experiments R. Working Paper at CICF, J Bhattacharya, U. and H. Deouk. When no Law Is Better than a Good Law J. Review of Finance, 2009, J Berkowitz, D., K. Pistor, and J. Richard. Economic Development, Legality, and the Transplant Effect J. European Economic Review, 2003, Pistor, K., M. Raiser and S. Gelfer. Law and Finance in Transition Economies J. Economics of Transition, 2000,

14 11 Fang, L. and A. Yasuda. The Effectiveness of Reputation as a Disciplinary Mechanism in Sell-side Research J. Review of Financial Studies, 2009, J Jensen, M. C. and W. H. Meckling. Theory of the Firm Managerial Behaviour, Agency Costs and Ownership Structure J. Journal of Financial Economics, 1976, Healy. P. M. and K. G. Palepu. Information Asymmetry, Corporate Disclosure, and the Capital Markets A Review of the Empirical Disclosure Literature J. Journal of Accounting and Economics, 2001, Fong, K., H. Hong, M. Kacperczyk and J. Kubik. Do Secutiy Analysts Discipline Credit Rating Agencies R. Working paper, University of New South Wales, Lang, M. H., K. V. Lins and D. P. Miller. Concentrated Control, Analyst Following, and Valuation Do Analysts Matter Most When Investors are Protected Least J.Journal of Accounting Research, 2004, J Ljungqvist, A., F. Marston, L. T. Starks, K. D. Wei and H. Yan. Conflicts of Interest in Sell -Side Research and the Moderating Role of Institutional Investors J. Journal of Financial Economics, 2007, J Cowen, A., B. Groysberg and P. Healy. Which Types of Analyst Firms are More Optimistic J. Journal of Accounting and Economics, 2006, J J J Xu, N., K.C. Chan, X. Jiang and Z. Yi. Do Star Analysts Know More Firm-Specific Information Evidence from China J. Journal of Banking & Finance, 2013, Jones, J.. Earnings Management During Import Relief Investigations J.Journal of Accounting Research, 1991, Dechow, P., M. Sloan and A. Sweeney. Detecting Earnings Management J. Accounting Review, 1995, J J Burgstahler, D. and I. Dchev. Earnings Management to Avoid Earnings Decreases and Losses J. Journal of Accounting and Economics, 1997, ,,. J, ) Chang, X., S. Dasgupta and G. Hilary. Analyst Coverage and Financing Decisions J. Journal of Finance, 2006, J

Myers Majluf 1984 Lu Putnam R&D R&D R&D R&D

Myers Majluf 1984 Lu Putnam R&D R&D R&D R&D 2018 1 156 1 2 2 1. 233030 2. 233030 2005 ~ 2015 A F830. 2 A 1008-2506 2018 01-0015-12 1 2015 1 2017-07-18 71540004 BBSLDQDKT2017B02 1990-1993 - 1964-1 15 2018 1 2025 2015 1 2011 2 + Myers Majluf 1984