Essays on earnings management and analyst forecast

Managers and security analysts play important roles in conveying information concerning firms' future to investors. Both mangers and security analysts have certain freedom to choose the form, timing, and content of their disclosure or forecasts. This dissertation studies rational expectation of economic parties, including managers, analysts, the equity market and the labor market, as potential explanations for managers' and analysts' disclosure behavior.; The first essay studies the relation between security analysts' forecasting abilities and their strategic timing decisions. I model analyst behavior in a dynamic setting where incentives are provided by the market's evaluation of an analyst's ability. Under this setting, both forecast timing and forecast accuracy affect the market's perception. The paper demonstrates that analysts delay revealing private information or make early uninformative forecasts to influence the market's evaluation of their abilities. The model predicts that analysts with more precise private information forecast more timely and more frequently than analysts with less precise private information. Using quarterly earnings forecasts in I/B/E/S from 1993 to 2004, I find supporting evidence for the prediction.; The second essay studies the relationship between the amount of managed earnings and firms' earnings performance and expected growth in a reporting model, where managers manipulate earnings to influence the valuation of firms' equity while bearing a cost that is increasing and convex in the amount of managed earnings. In the unique revealing equilibrium to the model, firms with higher performance and growth over-report earnings by a larger amount because price responsiveness increases with earnings performance and growth. And earnings quality, defined as the proportion of true economic earnings in total reported earnings, increases with earnings performance but decreases with earnings growth. Empirical tests are conducted on a large sample and a restatement sample using different proxies for earnings management. Results from the large sample tests support the model's predictions while results from the restatement sample tests are mixed. This study provides an alternative explanation to the positive relationship between discretionary accruals estimated from the Jones model and firms' performance and growth.