Work

The effect of restatements on analyst behavior

Year: 2017

Type: article

Abstract: This paper examines how changes in the credibility of financial reporting affect analyst behavior. Using a sample of restatement firms experiencing a substantial change in credibility over 1997–2006, we document that restatements have a long‐lived effect on analyst behavior and that analysts differentiate between restatements caused by irregularities and those caused by errors. We find that while irregularity restatement firms exhibit a reduction in analyst coverage and forecast accuracy and an increase in forecast dispersion in the post‐restatement period, other restatement firms exhibit only an increase in forecast error. Finally, we find evidence to suggest that remedial actions reduce the effect of irregularity restatements on analyst behavior. Overall, these results are consistent with the notion that restatements affect analyst behavior in forming judgements regarding subsequent earnings announcements.

Source: Journal of Business Finance &amp Accounting

DOI: 10.1111/jbfa.12255

Authors: Chunlai Ye, Lin‐Hui Yu

Institutions: Texas A&M International University, National Taiwan University

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

Funder: Ministry of Science and Technology, Taiwan

OpenAlex ID: W2606972368

FWCI: 4.425

Cites: 45

Cited by: 16

Related to: 10