Analyst following, disclosure quality, and discretionary impairments: Evidence from China

Abstract

Financial statement preparers' discretion in fair value measurements is integral to asset impairment accounting. Firms may misuse this discretion to report more or less impairment loss than is warranted by underlying economic circumstances. Using data from a sample of publicly listed firms in China, this study finds that analyst following reduces abnormal impairment loss, the portion of reported impairment loss that cannot be explained by corporate economic circumstances and that this effect is more pronounced for firms with lower information disclosure quality. However, the reducing effects of analyst following and its interaction with disclosure quality are greater for income-decreasing than for income-increasing abnormal impairment loss. Additional analyses support the argument that these differences are attributable to the dominance of accounting's contracting role over its informational role. Overall, the findings indicate that the influence of analyst following on discretionary impairment accounting decisions is moderated by disclosure quality and by the relative importance of accounting's contracting and informational roles in an emerging market setting.

Does performance persistence below aspirations affect firms' accounting information disclosure strategies? An empirical study based on reliability and comparability

“…To better obtain the net effect of PPBA on corporate accounting information disclosures, we also controlled for the variables that are thought to affect corporate accounting information disclosure behavior (Cascino et al, 2010; Dhole et al, 2020; Hribar et al, 2022). First, as a previous study pointed out that corporate finance characteristics are an important factor affecting the disclosure of corporate accounting information (Jiang, 2020; Ran et al, 2015; Velte, 2021), we controlled for corporate finance characteristics such as Firm size , Leverage rate , Profit growth, Asset turnover , and Stock returns . Second, given that a number of studies have shown that firms with better corporate governance are more likely to disclose high‐quality accounting information (Li et al, 2022; Ran et al, 2015; Zaman et al, 2022), we also controlled for several variables for the quality of corporate governance, including Board size , Independent directors, and Executive shareholding .…”

“…finance characteristics are an important factor affecting the disclosure of corporate accounting information (Jiang, 2020;Ran et al, 2015;Velte, 2021), we controlled for corporate finance characteristics such as Firm size, Leverage rate, Profit growth, Asset turnover, and Stock returns. Second, given that a number of studies have shown that firms with better corporate governance are more likely to disclose high-quality accounting information (Li et al, 2022;Ran et al, 2015;Zaman et al, 2022), we also controlled for several variables for the quality of corporate governance, including Board size, Independent directors, and Executive shareholding.…”

Audit Committee Diversity, Analysts’ Forecast Accuracy and Earnings Management: Evidence from Malaysia

“…Their result found that in a setting where there is high expropriation likelihood, minority shareholders will put more value on private information and, hence, rely more on analyst following. In China, Jiang (2020) found that analyst following results in the high quality of financial statements, especially in terms of fair value recognition, as analyst following reduces abnormal impairment loss and this effect prevails for firms with lower information disclosure quality. Wang and Yu (2021) found that the effect of analysts' forecast accuracy is influenced by whether the country is a code or common law country.…”