Journal of Shanxi University of Finance and Economics 10.13781/j.cnki.1007-9556.2017.03.008 1 2 1 1. 100871 2. 611130 2006 F832.5 A 1007-9556 2017 03-0097-14 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 100871; 2.School of Finance, Southwestern University of Finance and Economics, Chengdu 611130, 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 2008 2011 [2 3] 2017-02-20 71572151 1986-1976- 1969-97
Yu 2008 Sun 2009 Chen 2013 [2 4 5] 2006 [8] Berkowitz 2003 [9] Pistor 2011 [6] 2000 [10] 1998 1 Malmendier and Bhattacharya and Daouk 2006 [7] Shanthikumar 2007 Fang and Yasuda 2009 2007 [1,11,12] Jensen and Meckling 1976 [13] 2007 5 Jensen and Meckling 1976 [13] Healy and Palepu 2001 [14] Yu 2008 [2] 2004 2015 Fong et al. 2012 [15] Lang et al. 2004 [16] Sun 2009 [4] 98
2011 [3] H1b 2009 [17] Fang and Yasuda 2009 [11] 2011 [6] Xu et al. 2013 [24] 2 H2a Ljungqvist et al. 2007 2011 [18,19] Cowen et al. 2006 2013 [20,21] H2b 2013 [21] 2005 [22] 2011 [23] 2011 [6] 3 H3a H1a H3b 99
AC i t ΔSR i t FA i t OLS A 15 2004 2015 C2 C9 CSMAR 2004 1 α 赞 1 α 赞 2 α 赞 3 NDA i t 2003 6 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 2004 2015 69 031 Dichev 1997 [29] 2005 [30] Yu 2008 [2] 2004 2015 EMD 5% 0.05 EMD=1 EMD=0 1. 1 0 ADA 2005 [30] 0.05 Jones Jones 1991 Dechow et 2. al. 1995 Yu 2008 2006 2009 [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
3. C 2SLS Chang et al. 2006 [31] 2007 1 5 2007 5 BigD i BigD=1 0 2006 2012 [32] 2008 A B C 2 IndMeanAna Ind- 2004 2005 2006 2007 2008 2009 2015 MeanStar IndMeanNonStar i 2006 1 1 2007 5 1 4. Yu 2008 1 2006 2009 1 4.4% 1 size 2009 0 2 MB 2 3 0 2 ROA 4 10.92% GRA 0 5 CFV 1 6 IH 7 ADA 16060 0.0679 0.0000 0.0437 7.9428 0.1216 GH 8 size 16060 15.1238 12.7957 15.0209 EF 21.5287 1.0329 MB 16060 0.0035-7.3159 0.0025 8 2.7887 0.0672 DAC ROA 16060 0.0193-59.9032 0.0262 0.4565 0.4664 GRA 16060 0.5510-1.0000 0.1005 3741.2436 29.0720 CFV 16060 0.2139 0.0001 0.0805 129.7992 1.4805 99% IH 16060 0.1790 0.0000 0.1092 1.5937 0.1907 Winsorize GH 16060 0.1436 0.0000 0.0000 0.9712 0.2210-0.9 60 EF 16060 0.1020-18.9735-0.0016 935.6580 7.1866 10-1 Ana 16060 6.2697 0.0000 2.0000 64.0000 8.7735 35 Star 16060 1.2271 0.0000 0.0000 19.0000 2.1533 16 060 - Nstar 16060 5.0426 0.0000 2.0000 55.0000 7.0372 BigD 16060 0.0057-7.9428 0.0036 1 4.4367 0.1392 EMD 10388 A 0.0397 0.0000 0.0000 1.0000 0.1994 B DAC 10388-0.0132-0.2571 0.0000 0.7501 0.06701 101
2 GH 0.3520 0.2973 ADA 0.0806 0.0000 0.0000 0.0000 5.81% 6.89% ADA EF 0.0131 0.0090 0.1313 0.0476 0.0000 0.0000 Ana 1.3307 1.9354 7.8033 0.0000 0.0000 0.0000 6% 3% -0.99% Star 0.1336 0.2945 1.5747 0.0000 0.0000 0.0000-3.00% 1 Nstar 1.1984 8 0 1.6309 6.2287 0.0000 0.0000 0.0000 BigD 0.3767 0.4513 0.5493 0.0000 0.0000 2 0.0000 EMD 0.0597 0.0478 0.0329 0.3222 0.0074 0.1722 2 DAC -0.0099-0.0063-0.0300 0.3117 0.0000 0.0000 1 2 3 Wilcoxon P - 1-2 1-3 2-3 2283 1192 12585 - - - ADA 0.0581 0.0573 0.0689 0.7674 0.0000 0.0000 Size 14.1594 14.4788 15.3313 0.0000 0.0000 0.0000 MB 0.0020 0.0035 0.0036 0.0000 0.0000 0.0000 ROA 0.0141 0.0176 0.0209 0.7467 0.0000 0.0000 GRA 0.1184 0.1345 0.6944 0.3189 0.0000 0.0000 CFV 0.2135 0.1934 0.1768 0.0222 0.0000 0.0000 IH 0.1329 0.1786 0.1762 0.0000 0.0000 0.1665 ADA 1.000 ADA Size MB ROA GRA CFV IH GH EF Ana Star Nstar BigD EMD DAC size 0.040 1.000 MB 0.001 0.009 1.000 ROA -0.092 0.035-0.006 1.000 GRA 0.131 0.014 0.000-0.968 1.000 CFV 0.115-0.030 0.021-0.682 0.718 1.000 IH 0.011 0.139 0.011 0.018-0.004 0.005 1.000 GH -0.019-0.060-0.004 0.002-0.001 0.008 0.011 1.000 EF 0.124 0.012 0.000-0.975 0.992 0.689-0.004-0.003 1.000 Ana 0.051 0.586-0.001 0.062-0.007-0.036 0.175-0.113-0.005 1.000 Star 0.035 0.533 0.000 0.051-0.005-0.033 0.151-0.132-0.004 0.849 1.000 3 Nstar 0.054 0.567-0.001 0.062-0.007-0.035 0.172-0.100-0.005 0.987 0.753 1.000 3 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 -0.011 0.481-0.009 0.031-0.013-0.061 0.037 0.004-0.010 0.309 0.293 0.296 1.000 EMD 0.029-0.032-0.001 0.008 0.017-0.025 0.053-0.015-0.077-0.023-0.031-0.023-0.081 1.000 DAC -0.045-0.028 0.022-0.161 0.017 0.073-0.004 0.018-0.032-0.061-0.035-0.173-0.018 0.047 1.000 102
10% -0.001 7 2.98 0.000 4 0.068 9 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 4 0 0 0 0 0 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 4 5 4 103
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 6 2007 Yu 2008 [2] 2007 5 DAC 6% 6 6 6 2007 2007 2015 4 5 5 H1a 5 Constant 2007-2015 1-93.481 *** -78.76 2 0.0672 *** 3.17 6 Res Ana Size MB 6.2390 *** 87.04-0.2874-0.36-0.0004 *** -2.90 0.0003 0.26 0.0055 0.39 Constant Res Ana 1-0.0135-0.08-0.0047 1.06 2-0.0572-0.36 0.0011 0.36 3 0.0708 *** 2.87-0.0026 *** -4.58 Lag ROA 10.1209 *** 18.02 DAC 0.7334 1.18 0.8534 *** 3.09 0.0642 * 1.69 ROA -0.0008-0.81 Size 0.0055 0.48 0.0080 0.72 0.0032 0.64 GRA -0.0500 *** -3.22 0.0055 *** 19.83 MB -17.0337 * -1.69-4.9520-1.01-0.8035-1.23 CFV -0.0279-0.47 0.0099 *** 9.32 ROA 0.2717 1.35-0.0000 0.00-0.1576 ** 2.21 IH GH EF 5.7237 *** 17.79-4.1826 *** -11.36 0.8331 *** 11.96-0.0049-0.86 0.0072 1.09-0.0213 *** -17.15 Year Yes Yes Industry Yes Yes Sample 13632 13632 Adj. R 2 % 45.3 12.0 GRA CFV IH GH EF 0.0591 1.54-0.0018-0.08-0.0380-0.76-0.0133-0.39-0.0492-0.44 0.0395 1.12-0.0546 * -1.66-0.0085-0.17 0.0399 0.97-0.0206-0.19-0.0010-0.40 0.0300 ** 2.14 0.0069 0.32 0.0334 1.33-0.0405 ** -2.20 104
Year Yes No Yes MB -17.1801-0.1467-1.5786-0.0933-0.1395 0.0361 ** -1.03-0.39-0.32-0.88-0.17 2.43 1 2 3 4 5 6-8.3949 Constant *** 0.0271-12.1283 *** -0.0205-92.5751 *** 0.5056 *** -5.67 0.91-6.18-0.48-59.60 8.97 Pre Ana BigD 0.3190 *** 2.46 Ind- -0.1393 MeanAna -0.98 Size Industry Yes Yes Yes Sample 837 627 8924 Adj. R 2 % 5.2 2.0 3.8 0.3249 CFV ** 0.0121 *** -0.1601 0.0047-0.3222 ** 0.1028 *** 2.31 3.80-0.72 0.99-2.47 13.01 0.9212 IH *** 0.0156 ** 0.9736 ** 0.0187 ** 5.6108 *** 0.0018 * 5 2SLS 2.93 2.17 2.37 2.06 16.10 1.74-0.1433 0.0070 0.1143-0.0001-4.2646 GH *** 0.9076-0.66 1.43 0.31-0.01-10.55 1.41 0.6006-0.0804 Ana i t =α+ρ 1 BigD i t +ρ 2 IndMeanAna i t + M m=1 ρmctrl m EF *** 1.3226 0.0353* 0.8630 *** 0.1985 *** 0.89-5.30 1.43 1.78 11.84 9.15 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 2283 2283 1192 1192 12562 12562 7 2SLS 5 Adj. R 2 17.0 14.4 14.3 7.5 45.4 13.7 % 7 5% -0.002 1 0.068 9 ADA 3.0% Yu 2008 [2] OLS 7 0.0035 ** 2.31-0.3104 * -1.65-0.0843-0.41 0.0009 0.44-0.7277-0.75 0.6521 *** 5.53-0.0021 *** -3.94 0.7612 *** 0.0000 0.9813 *** 0.0041 6.5364 *** -1.3706 8.31 0.02 8.57 1.31 18.45 0.36 ROA GRA 3.0566 *** -0.2977 *** 6.2540 *** -0.1600 *** 11.2741 *** -2.3568 *** 3.15-13.59 4.00-4.52 18.45-8.90 0.4612 * 0.0488 *** -0.1159 0.0155 *** -0.0325 * 0.0110 *** 1.90 8.88-0.70 4.43-1.92 13.47 2006 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 8 8 105
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 0.000 3 + N δnind n=1 i n+ε i t 9 Law 8 2006 1 0 Enforce 2008 2015 1 0 9 9 1 2 9 2 Constant Pre Ana Size MB ROA GRA CFV IH GH EF 0.0067 0.67-0.0026-1.23 0.0195 *** 2.92 0.0004 0.00-0.2367 *** -5.41 0.0107 1.57-0.0000-1.29 0.0240 * 1.68-0.0048-0.31 0.0621 *** 3.41-0.0.0192-1.21-0.0003 *** -3.97 0.0252 *** 5.15-0.0298-0.12-0.0020-0.12 0.0210 *** 4.72-0.0000-0.08-0.0041-0.31-0.0029-0.25 0.0193 * 1.75 Year No Yes Industry Yes Yes Sample 1048 7798 Pre Ana*law Pre Ana*Enforce 5% - 0.047 9 9 Constant BigD IndMeanAna Pre Ana Pre Ana*law Pre Ana*Enforce 1-80.6870 *** -74.00-0.1058-0.91 0.7929 *** 6.94 2 10.4037 *** 7.12 0.0017 *** 7.09 0.0002 0.35-0.0047 ** -2.05 Adj. R 2 % 4.9 4.2-0.0885 Law *** -6.73 0.0073 Enforce *** 7.10 5.4605 Size *** -0.7461 *** 79.68-7.08-0.2210 0.0354 MB ** -0.30 2.59 9.5456 ROA *** -1.3214 *** 19.23-7.12 106
10-0.0525 GRA *** 0.0128 *** -3.69 12.26 1 2 3 4 5 CFV -0.0049-0.10 0.0088 *** 9.91 Constant -16.9928 *** -63.6923 *** -3.9152 *** 5.2328 *** -0.0181-58.07-72.06-6.97 7.16-1.17 IH 4.9570 *** 18.52-0.6814 *** -7.06 BigD 0.0598 * 1.94-0.1656 * -1.76 GH EF -3.4281 *** -12.47 0.8034 *** 12.67 0.0478 *** 7.16-0.1324 *** 7.14 Year effect Yes No IndMeanStar IndMeanNon- Star Pre Star 0.7355 *** 4.43 0.8058 *** 7.09-0.2416 *** -7.03-0.1714 *** -6.85 Industry effect Yes Yes Sample 16060 16060 Adj. R-sqr % 45.8 11.3 Pre Star*law Pre Star*Enforce 0.0013 0.40-0.0019 * -1.90 0.0070 0.31-0.0148 * -1.92 0.0882 Pre NonStar *** 0.0336 *** 7.11 5.95 2SLS Pre 0.0003-0.0015 NonStar*law 0.34-0.26 9 Pre NonStar* -0.0006-0.0045 Enforce -1.10-1.29 2SLS 0.0123 Law ** -0.0523 *** -0.0100 * 10 2.31-6.05-1.70-0.0887 Enforce *** 0.2707 *** 0.0336 *** 7.07 7.10 3.11 5% 1.1565 Size *** 4.3040 *** 0.2849 *** -0.3738 *** 0.0592 *** 0.017 9 63.28 77.37 7.07 7.08 3.65-0.1261-0.0949-0.0256 MB * 0.0134-0.0120-0.64-0.16-1.86 1.02-0.90 1.7184 ROA *** 7.8272 *** 0.4071 *** -0.6971 *** 0.0295 12.98 19.42 6.85-7.14 1.11-0.0102 GRA *** -0.0423 *** 0.0031 *** 0.0093 *** 0.0052 *** -2.70-3.66 7.11 16.13 17.89 H2a 0.0038-0.0087 0.0090 CFV *** 0.0089 *** 0.0090 *** 0.28-0.22 10.16 10.00 10.10 1.0411 IH *** 3.9159 *** 0.2524 *** -0.3441 *** 0.0481 *** 14.59 18.02 7.03-7.03 3.18-0.7716 GH *** -2.6565 *** -0.1799 *** 0.2407 *** -0.0361 *** -10.52-11.13-6.71 7.20-3.11 0.1470 EF *** 0.6564 *** 0.0137 *** -0.0797 *** -0.0182 *** 4.21 12.75 2.64-9.71-7.54 Year effect Yes Yes No No No 107
Industry effect Yes Yes Yes Yes Yes Pre.Ana*Enforce -0.0009 * -1.72 Sample 16060 16060 16060 16060 16060 0.0011 Pre.Ana*IH 0.55 Adj. R-sqr 36.0 44.5 11.3 11.3 11.3 % -0.0013 Pre.Ana*law*IH -0.41-0.0032 Pre.Ana*Enforce*IH -1.51 9-0.0165 Pre.Star *** -0.0254 ** -4.52-2.02 2SLS 0.0029-0.0152 Pre.Star*law 0.61-0.52 11-0.0044-0.0076 Pre.Star*Enforce -1.51-0.61 0.0101-0.0634 Pre.Star*IH 1.09-1.35 Pre Star*IH -0.0114-0.0027 Pre.Star*law*IH * -0.77-1.85-0.0102 Pre.Star*Enforce*IH *** -0.0173 ** -1.99-2.43 Pre Star*Enforce*IH -0.0000 0.0028 Pre.NonStar -0.03 0.87 0.0003 0.0049 Pre.NonStar*law 0.27 0.64-0.0011 0.0012 Pre.NonStar*Enforce -1.39 0.36 0.0011 0.0197 Pre.NonStar*IH 0.47 1.59-0.0014 0.0358 Pre.NonStar*law*IH -0.35 0.35 Pre.NonStar* 0.0041-0.0173 Enforce*IH 1.53-1.34 3-0.0063-0.0043-0.0065-0.0064 Law -1.16-0.82-1.19-0.93 0.0202 Enforce *** 0.0222 *** 0.0193 *** 0.0190 *** 11 5.19 5.97 4.90 4.02 0.0170 0.0338 0.0137 0.0473 law*ih * 1 2 3 4 0.77 1.09 0.61 1.80 Constant 0.0023 0.07-0.1918 *** -5.30 0.0394-0.1776 *** 1.37-4.86 Enforce*IH -0.0599 *** -3.84-0.0382 ** -2.55-0.0630 *** -0.0241-4.02-1.29 Pre.Ana -0.0006-0.81 Size 0.0036 * 1.65 0.0174 *** 6.90 0.0009 0.45 0.0163 *** 6.43 Pre.Ana*law 0.0003 0.30 MB 0.0036 0.28 0.0018 0.14 0.0039 0.30 0.0018 0.14 108
ROA GRA CFV IH GH EF -0.0075-0.74 0.0056 *** 21.96 0.0086 *** 9.70 0.0158 1.42 0.0123 *** 2.63-0.0219 *** -18.29 0.0199 ** -1.98 0.0055 *** 21.55 0.0086 *** 9.74 0.0120 1.14 0.0025 0.52-0.0144-1.44 0.0056 *** 22.09 0.0086 *** 9.66 0.0163 1.44 0.0130 *** 2.80 0.0069 0.67 0.0055 *** 21.83 0.0085 *** 9.54-0.0070-0.46-0.0040-0.81-0.0197 *** -0.0225 *** -0.0208 *** -16.59-18.85 17.35 Year effect No No No No Industry effect Yes Yes Yes Yes Sample 16060 16060 16060 16060 Adj. R-sqr % 10.5 10.8 10.5 11.0 2006 Bhattacharya and Daouk 2006 [7] 1 2006 1 1 2005 10 11 2 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, 85 2 457-489. 2 Yu, FF. Analyst Coverage and Earnings Management J. Journal of Financial Economics, 2008, 88 2 245-271. 3. J. 2011 6 91-104. 4 Sun, J. Governance Role of Analyst Coverage and Investor Protection J. Financial Analysts Journal, 2009, 65 6 52-64. 5 Chen, T., J. Harford and C. Lin. Do Analysts Matter for Governance? Evidence from Natural Experiments R. Working Paper at CICF, 2013. 6. J. 2011 9 127-140. 7 Bhattacharya, U. and H. Deouk. When no Law Is Better than a Good Law J. Review of Finance, 2009, 13 4 577-627. 8. J. 2006 9 94-120. 9 Berkowitz, D., K. Pistor, and J. Richard. Economic Development, Legality, and the Transplant Effect J. European Economic Review, 2003, 47 1 165-195. 10 Pistor, K., M. Raiser and S. Gelfer. Law and Finance in Transition Economies J. Economics of Transition, 2000, 8 2 325-368. 109
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