An Empirical Study On The Relationship Between Analysts’ Forecasts And Earnings Management

China’s capital market is an emerging market while the security analysts industry is a young industry. But analysts can transfer the information hidden behind the financial statements to the investors through the forecast reports. They reduce the information asymmetry between investors and managers and put a positive impact on the allocation of resources in the entire capital market. As a result, it becomes a kind of external supervision mechanism for corporate governance.Because China’s capital market and legal environment is not perfect, China’s listing corporation management exists the phenomenon of earnings management. So earnings management has also become a very hot issue for domestic scholars. Agency theory and Asymmetric Information Theory provide the space for earnings management behavior. Due to the special historical and institutional background of China’s capital market, listing corporations have stronger motivations of earnings management, and adopt the methods of earnings management which is quite different from the Western listing Corporation.Although foreign literature covers the relationship between the two in the foreign capital market, domestic research about this aspect is lack of System research. Therefore, this paper tries to discuss analysts as the external supervision mechanism and management behavior of earnings management and what relation is between each other, to expose the significance of analyst for corporate governance. This paper selects2008-2012listing corporation as the initial sample, bases on the multiple regression models and discusses the relationship between the two aspects in the way of the selection of the company’s standard, the prediction results report and change of the means of earnings management.This paper proves that the analysts, when they pick up the interesting company, prefer companies with smaller degree of earnings management and avoid companies with the large degree of earnings management. For the company with analysts focused on, along with the increase of the number of analysts tracking, the external supervision to company management gets strengthened and the extent of earnings management in the company gradually becomes smaller. The paper also finds that company earnings management will affect the results of analyst forecasts. Empirical results show that, the higher degree of earnings management, the analyst forecast accuracy is worse; the higher the degree of earnings management, analysts’predicts are more different. The earnings management behavior interferences the process of the data generation in the financial report, reduces the reliability of accounting information, and leads deviation for company earnings forecast. Finally, this paper proves that the number of analysts following will force the company management to change the means of earnings management and earnings management method get more subtle and covert.In the course of the study, this paper also found that institutional investors in a certain degree play a supervisory role for the company’s management. With the development of China’s capital market, institutional investors will be more and more important in the capital market because of the huge amount of investment and full of analysis of talent.Finally, the thesis gives some advice to the analyst industry development, points out the innovation and contribution of the paper, and also discuss the shortcomings of this study and directions of future research.