Does analyst coverage constrain real earnings management?

• We examine the impact of analyst coverage on real activities manipulation.
• Real earnings management is measured by three alternative proxies.
• High analyst coverage leads to more real earnings management.
• Analyst coverage cannot constrain real activities manipulation.

This study investigates the impact of analyst coverage on real earnings management, which is measured by using three proxies including abnormal cash flows from operations, abnormal discretionary expenses, and abnormal production costs. We document evidence that real earnings management is significantly higher when firms are followed by more analysts, suggesting that analyst coverage does not constrain real earnings management as effectively as it constrains accrual earnings management. Our findings also imply that firms with high analyst coverage have greater incentives to engage in real activities manipulation.