Information acquisition from SEC filings and earnings management

Abstract

The literature suggests that investors' information acquisition may have two opposite effects on earnings management. First, greater information acquisition enables investors to better ascertain a firm's operational and financial conditions and thereby to better monitor earnings management. Second, extensive information acquisition, especially the acquisition of interim reports, can induce manager myopia if investors focus on short-term performance. Using the number of downloads of 10-K, 10-Q and 8-K filings to proxy for information acquisition, I find that downloads are negatively related to earnings management, consistent with the monitoring view. In further analyses, I find that this negative relation is stronger when downloads are concentrated among fewer IP addresses, consistent with concentrated information acquisition having a stronger monitoring effect. I also find that the relation is stronger for firms that are more likely to experience agency problems, e.g., firms with weaker external and internal monitoring and firms with incentives to manage earnings. I contribute to the extant research by providing evidence of the influence that investors' information acquisition has on corporate reporting behavior.