Search Results (24)

This study explores how IFRS adoption is associated with analysts’ forecast accuracy, optimism, and dispersion in Saudi Arabia. Drawing on data from publicly listed firms from 2013 to 2020, we assess changes in forecasting behavior surrounding the IFRS transition, accounting for firm-specific and macroeconomic factors. We argue that IFRS is expected to support more transparent financial statements, reduce risk and uncertainty, and offer a standardized and detailed reporting framework that influences analysts’ predictive performance. The findings reveal more accurate forecasts and a decline in both optimism and dispersion following IFRS adoption, suggesting enhanced financial reporting quality and reduced uncertainty. These associations underscore IFRS’s potential role in refining analysts’ earnings predictions and promoting stock market transparency. Full article

This study examines whether climate risk disclosure (CRD) matters to financial analysts in China. Using textual analysis to measure CRD, we find that CRD is negatively related to analyst forecast error and dispersion, supporting the information hypothesis. We also find that information disclosure quality (e.g., earnings quality) and external monitoring (e.g., long-term institutional investor) may moderate this relationship. Mechanism analysis indicates that lower information asymmetry and more climate-related on-site visits are potential channels through which CRD influences analyst forecast properties. Furthermore, the above relationship is more pronounced in regions with higher climate awareness, carbon-intensive industries, and state-owned enterprises, and the relationship is primarily driven by transition risk disclosure (TCRD) rather than physical risk disclosure (PCRD). Our findings, which remain valid after addressing various robustness and endogeneity concerns, have significant implications for regulators to standardize and enhance CRD practices. Full article

This article examines whether the presentation of integrated reports (IRs), the external assurance of non-financial information, and the use of auditing standards affect market liquidity and the accuracy of earnings per share forecasts in the Chilean market following the publication of the International IR Framework. Using ordinary least squares estimations, results show that IRs significantly reduce information asymmetry, thereby improving market liquidity. This effect is reinforced when non-financial information is externally assured, particularly under the ISAE3000 standard. However, neither IRs nor external assurance significantly impact financial analysts’ earnings forecast accuracy, suggesting that such information serves a complementary role in their evaluations. This study contributes to the literature by providing empirical evidence on the role of IRs and assurance in emerging economies, emphasizing their effectiveness in enhancing transparency and liquidity. The findings have direct implications for companies, as they suggest that adopting IRs and obtaining external assurance can strengthen market perceptions and investor confidence, particularly when using the ISAE3000 standard. For regulators, the results highlight the potential benefits of promoting standardized sustainability disclosures and assurance mechanisms to foster transparency in capital markets. Investors, in turn, can use IR quality and assurance as signals of corporate credibility and long-term value creation. Full article

This paper challenges the prevailing view that intra-industry information transfers are primarily driven by public information. Contrary to conventional wisdom, I find that investors in late-announcing firms impound more private information after early-announcing peers report earnings. This increase is substantial, leading to an 18.2% decrease in analyst forecast consensus and a 24.9% increase in forecast precision. Moreover, the probability of informed trading rises by 2% on days with peer announcements. This finding is important because investors tend to overweight (underweight) private (public) signals, thereby exacerbating over- and underreaction anomalies. Our study confirms that these anomalies are more pronounced when early announcements stimulate private information production, offering a theoretical explanation for their puzzling coexistence. These findings have significant implications for investor behavior and market efficiency. Investors should diligently evaluate both public and private information, particularly following peer announcements. Policymakers can leverage these findings to design regulations that promote transparency and foster efficient information dissemination. Full article

As environmental, social, and governance (ESG) issues become increasingly important, ESG ratings have become a significant factor influencing audit fees for businesses. However, ESG ratings are typically assessed by multiple agencies or rating firms and, due to differences in evaluation criteria, methodologies, and data sources, the ratings provided by different institutions may vary considerably. Therefore, research on the impact of discrepancies in ESG ratings on audit fees is of great significance. This paper examines this phenomenon by analyzing a sample of Chinese listed companies from 2015 to 2022, yielding 3056 observational values through various methodologies. The study employs two-way fixed effects methods. The findings indicate that discrepancies in ESG ratings significantly elevate enterprises’ audit expenses, with operating risk and analyst earnings forecast errors serving as intermediary factors. Additionally, media attention intensifies these effects by increasing corporate disclosure, intensifying regulatory pressure, and heightening reputational risks for the company, and the positive impact of ESG rating discrepancies on audit fees is more significant when the “Big 4” accounting firms are involved in the audit. The research offers insights for enterprises, auditors, and regulatory bodies, contributing to the enhanced implementation of the ESG concept and fostering sustainable enterprise development. Full article

This study investigates the relationship between corporate ethics and the information intermediation element of public companies’ information environment. Drawing on the well-established virtue, deontological, and consequential ethical theories, we predict that higher corporate ethics standards have a positive effect on financial analysts’ behavior and earnings forecasts. Using a sample of 5276 firm-year observations from 780 publicly listed US companies, multivariate regression analyses document a significant positive association between company’s level of ethical commitment and analyst coverage and forecast accuracy. Furthermore, the results show that firms with fewer incidents of ethical misconduct are associated with higher analyst consensus. These findings hold across a battery of robustness tests and indicate that a firm’s ethical commitment enhances its corporate information environment and allows financial analysts to play a more effective intermediary role in capital markets. Full article

Previous research provides conflicting results regarding how R&D expenditures impact market value. Given that financial analysts are the primary intermediaries between companies and investors, our study focused on the impact of R&D-related uncertainty, growth, and information asymmetry associated on analysts’ earnings forecasts. Based on 19,834 firm-year observations in the European market between 2005 and 2020, our results show that R&D activities lead to higher absolute forecast error and negative forecast error, indicating higher forecast inaccuracy with an optimistic bias. Additionally, these investments contribute to higher forecast dispersion, indicating disagreement among financial analysts. The comparison between 17 industries revealed that these effects are more pronounced in R&D-intensive industries than in non-R&D industries, uncovering the varied relationship between R&D investments and analyst forecasts across sectors. Full article

Prior studies show that engaging in conservative financial reporting (CON) positively affects earnings quality. However, managers also manage earnings to meet/beat market earnings expectations (MBME). This study asks three questions regarding the earnings that MBME. First, it investigates whether managers are willing to sacrifice CON when adopting strategies to MBME. Second, it tests whether managers prefer to use other earnings management (EM) strategies to MBME instead of sacrificing CON. Third, it tests whether information asymmetry between managers and shareholders affects managers’ decisions to sacrifice CON. Results show that managers are more likely to sacrifice CON to MBME but are less likely to do so if they can manage earnings using accrual-based or real EM. Also, managers are more likely to do so when information asymmetry with shareholders is higher. These findings contribute to the literature by examining the circumstances in which managers would sacrifice CON to MBME. Full article

Several prior studies indicate that financial analysts exhibit systematic underreaction to information; others illustrate systematic overreaction. We assume that cognitive biases influence analysts’ behavior and that these misreactions are not systematic, but they depend on the nature of news. As cognitive biases intensify in situations of high ambiguity, we distinguish between bad and good news and investigate the impact of intangible assets—synonymous with high uncertainty and risk—on financial analysts’ reactions. We explore the effect of information conveyed by prior-year earnings announcements on the current-year forecast error. Our findings in the Saudi financial market reveal a tendency for overreaction to positive prior-year earnings change (good performance) and positive prior-year forecast errors (good surprise). Conversely, there is an underreaction to the negative prior-year earnings change (bad performance) and negative prior-year forecast error (bad surprise). Notably, analysts exhibit systematic optimism rather than systematic underreaction or overreaction. The results also highlight that the simultaneous phenomena of overreaction and underreaction is more pronounced in high intangible asset firms compared to low intangible asset firms. Full article

This work utilizes the Taiwanese data primarily focused on retailing investor behavior to examine whether Taiwanese brokerage analysts issue target price revisions, whether implicit information connotation exists and whether their own brokerages use the market reaction brought about by target price revisions to conduct conflict of interest operations. The event study is used to verify whether the above results exist. The empirical results show that analysts may publish information that includes investment recommendations, earnings forecasts, or price target forecasts. Whether investors with immediate and post-event media coverage revise their relevant investment strategies and avoid serious losses caused by this news is established. The research results show that the target price revision has implicit information content no matter the target price being revised. In addition, a conflict of interest between dealers’ trading behavior and analysts’ target price revisions exists. The major contribution of this work is to fill the research gaps concerning which retail investors are easily influenced by social media and herding behavior, as well as target price forecasting. The most efficient use of resources relates to the satisfaction of everyone’s interests on a fair basis, and thus greater contribution. The governance mechanism and check and balance function can help maximize the value of the company, not only by enhancing the competitiveness of the enterprise, but also by increasing the value of shareholders’ rights and interests and better fulfilling corporate social responsibility. Full article

This study investigates the impact of information uncertainty on analysts’ earnings forecasts for a sample of European companies from 2010 to 2019. We argue that representativeness, anchoring and adjustment, and leniency biases jointly influence analysts’ forecasts and lead to optimism. We suggest that uncertainty boosts analysts’ optimism as behavioral biases increase in situations of low predictability. We test analysts’ optimism through the association between forecast errors and, separately, two modifications (forecast revision and forecast change) when these modifications are upwards and downwards. To examine the uncertainty effect, we implement descriptive and regression analyses for two subsamples of high-tech and low-tech firms. The evidence indicates that analysts are optimistic, as they overreact to positive prediction modifications and underreact to negative prediction modifications. The optimism is more significant for high-tech firms and increases considerably with the forecast horizon. For robustness, we utilize analysts’ forecast dispersion as a second proxy for uncertainty, and we obtain comparable results. Full article

With increasing emphasis being placed on corporate social responsibility, the number of companies furnishing corporate social responsibility (CSR) reports is increasing. This study investigates the impact of abnormal positive tone in CSR reports on analysts’ earnings forecast bias. The textual analysis of CSR reports of Chinese listed companies between 2006 and 2016 reveals that an abnormal positive tone significantly and positively relates to an optimistic bias in analysts’ forecasts. This effect is pronounced among companies with poor financial transparency and those operating in regions where culture is stakeholder-oriented. Further analysis confirms that the poorer the company’s CSR performance, the more it tends to mislead analysts using an abnormal positive tone in its CSR report. Based on these findings, this study suggests that firms may greenwash using an abnormally positive tone in their CSR reports. Full article

Analysts are important participants in the capital market, but there are relatively few studies on the impact of the COVID-19 outbreak on analysts’ behaviors. This article examines the impact of the COVID-19 outbreak on the analysts’ earnings forecast optimism by using a sample of visits to Chinese listed firms during 2019–2020. We find that the analysts’ earnings forecasts become less optimistic and show pessimism after the outbreak of COVID-19. This result is consistent with past research findings that major natural disasters lead to analysts’ forecasts pessimism. However, we also find that the earnings forecasts issued by analysts with on-site visits are more optimistic after the COVID-19 outbreak. The increase in optimism is associated with accounting information transparency, the proportion of tangible assets, and the revenue geographical concentration of the visited companies. Further analysis shows that higher optimism in visiting analysts’ earnings forecasts after the COVID-19 outbreak leads to a positive market response, suggesting that optimism in visiting analysts’ forecasts misleads the market’s resource allocation. We also find that the higher level of optimism in visiting analysts’ earnings forecasts disappeared after the COVID-19 outbreak was well controlled. Overall, our study enriches the study of the impact of COVID-19 on capital markets from the perspective of analysts’ forecast optimism. Investors in other countries should also be aware of the impact of similar phenomena. Full article

This paper aims to investigate the effect of audit committee ethnicity, as part of the diverse cultures in Malaysia, on analysts’ forecast accuracy. In addition, this study investigates further the interactions between the unique cultures in Malaysia and earnings management to determine whether audit committee ethnicity still plays a role in earnings management. Based on 391 observations of firms followed by analysts from the year 2012 to 2014, our result indicates that firms dominated by Bumiputera audit committees have a higher analyst forecast error. In addition, we found that firms manage earnings to meet analysts’ forecasts, which is significant for firms dominated by Bumiputera audit committees. The results add new evidence on the effect of audit committee ethnicity on financial reporting quality in the multiracial country of Malaysia. Full article

Based on the urgent need of the real economy to “get away from fictitious to substantial”, this paper constructs a quasi-natural experiment based on the margin trading program gradually implemented in China in 2010 and studies the influence of the margin trading program on the financialization level of the target company by using the difference-in-difference method. The results show that, because of the dominant role of financing transactions in margin trading programs in China’s capital market, financing transactions drive up the share prices of listed companies, which leads to an excessive easing of the financing constraints of listed companies and short-sighted behavior of executives, which has a significant role in promoting enterprise financialization. Moreover, the driving effect is more significant in state-owned enterprises, enterprises with a high degree of financing constraint, and enterprises with a low degree of marketization. Economic policy uncertainty will restrain the positive effect of margin trading programs on enterprise financialization through information and governance mechanisms. In contrast, the “branding” effect caused by the financial connection of senior executives will intensify the positive relationship between margin trading programs on enterprise financialization levels. When considering the intermediary effect, we find that the margin trading program will result in the optimistic deviation of analysts’ earnings forecasts and cause the external profit pressure of enterprises, thus increasing the financialization trend. This study is of great theoretical significance and practical value for evaluating the policy effect of the margin trading program, improving this policy, investigating the influencing factors of enterprise financialization, and promoting the real economy to move from fictitious to substantial. Full article