Why companies manage their earnings?

 Joseph Grundfest and Nadya Malenko analyzed almost half a million earnings reports from 1980-2006. They discovered that when companies want to appear more successful than they are, they often massage their per-share earnings numbers upward by a tenth of one cent. 


Why earnings management?


Consistent with analyst coverage being a determinant of earnings management, quadrophobia increases (declines) when companies gain (lose) analyst coverage, and is more frequent when earnings are close to analyst forecasts."


Why analysts' coverage is required? In my opinion asymmetry of information about business between outsiders and insiders.


Quran says: Ayat 8 - 16 of Sura Al-Baqara


First the characteristics of people who lie.

1. Of the people there are some who say: "We believe in Allah and the Last Day" but they do not (really) believe.
2. Fain would they deceive Allah and those who believe but they only deceive themselves and realize (it) not!

Then the reasons why people lie.

1. In their hearts is a disease; and Allah has increased their disease and grievous is the penalty they (incur) because they are false (to themselves).

Then the symptoms of people who lie.

1. When it is said to them: "Make not mischief on the earth" they say: "Why we only want to make peace!"
2. Of a surety they are the ones who make mischief but they realize (it) not.
3. When it is said to them: "Believe as the others believe" they say: "Shall we believe as the fools believe?" nay of a surety they are the fools buy they do not know.
4. When they meet those who believe they say: "We believe" but when they are alone with their evil ones they say: "We are really with you we (were) only jesting."

Then the benefit cost analysis of lying.

1. Allah will throw back their mockery on them and give them rope in their trespasses; so they will wander like blind ones (to and fro).
2. These are they who have bartered guidance for error: but their traffic is profitless and they have lost true direction. 

Predicting the Next Enron - Freakonomics Blog - NYTimes.com

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