Does information uncertainty affect investors’ responses to analysts’ forecast revisions? An investigation of accounting restatements

Barniv, Ran; Cao, Jian

doi:10.1016/j.jaccpubpol.2009.06.003

Cited by 38 publications

(23 citation statements)

References 32 publications

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“…For example, various empirical studies have investigated the influence of earnings management (Ettredge et al 2010;Callan et al 2008;Choi et al 2010), CEO compensation (Efendi et al 2007), CFO characteristics (Aier et al 2005), audit committee characteristics (Abbott et al 2004), internal errors or ambiguous accounting standards (Plumlee and Yohn 2010), auditor industry expertise (Romanus et al 2008), and nonaudit-fees (Bloomfield and Shackman 2008;Kinney et al 2004;Raghunandan et al 2003) on the likelihood of a restatement. Research into the consequences of restatements has largely focused on evaluating the market or analyst responses (Barniv and Cao 2009;Akhigbe and Madura 2008;Griffin et al 2004;Hribar and Jenkins 2004;Griffin 2003), the effect on executive turnover or reputation (Leone and Liu 2010;Feldmann et al 2009;Collins et al 2009;Cheng and Farber 2008;Hennes et al 2008;Desai et al 2006), the likelihood of future litigation , or other effects on corporate governance (Srinivasan 2005). Considering audit fees in the context of restatement research creates a unique intersection of these two research streams: audit fees both influence the likelihood of a restatement (i.e., have a causal influence) and are potentially affected by restatements (i.e., represent a consequence).…”

Section: Prior Research and Hypothesismentioning

confidence: 99%

Abnormal Audit Fees and Restatements

Blankley¹,

Hurtt²,

MacGregor³

2012

AUDITING: A Journal of Practice &Amp; Theory

295

172

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We investigate the relationship between audit fees and subsequent financial statement restatements in the years following the Sarbanes-Oxley Act of 2002 (SOX). After controlling for internal control quality, we find that abnormal audit fees are negatively associated with the likelihood that financial statements are subsequently restated. This result conflicts with prior work that finds that audit fees are positively associated with future restatements. Overall, our evidence is consistent with the notion that restatements reflect low audit effort or underestimated audit risk in the periods leading up to the restatement year.

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Section: Prior Research and Hypothesismentioning

confidence: 99%

Abnormal Audit Fees and Restatements

Blankley¹,

Hurtt²,

MacGregor³

2012

AUDITING: A Journal of Practice &Amp; Theory

295

172

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“…With respect to forecast accuracy, we find that forecasts for both irregularity and other restatement firms become less accurate after restatements, and that the magnitude of the increase in forecast error for irregularity restatement firms is greater than that for other restatement firms. These results suggest that while investors’ reliance on analyst reports increases subsequent to restatements (Barniv & Cao, ), the forecasts analysts provide to customers are less accurate.…”

Section: Introductionmentioning

confidence: 99%

The effect of restatements on analyst behavior

Lan

2017

Business Fin & Account

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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.

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“…These consequences include negative market reaction towards restating companies (Anderson & Yohn, 2002;Chen Ken et al, 2014;Firth, Rui, & Wu, 2011;Kravet & Shevlin, 2010;Palmrose, Richardson, & Scholz, 2004;Scholz, 2008) and increase in the cost of equity capital (Bardos & Mishra, 2014;Firth et al, 2011;Hribar & Jenkins, 2004). Financial restatements also contribute to higher audit fees (Feldmann, Read, & Abdolmohammadi, 2009), higher dependency on the financial analysts' forecast revision (Barniv & Cao, 2009), increase in litigation risk , and higher management turnover for restating companies (Arthaud-Day, Certo, Dalton, & Dalton, 2006;Burks, 2010;Dao et al, 2014;Desai et al, 2006;Xu & Zhao, 2016). The negative consequences of financial restatements have attracted substantial attention from policymakers and motivated several regulations, involving some requirements of the Sarbanes Oxley Act of 2002 (Agrawal & Chadha, 2005).…”

Section: Literature Reviewmentioning

confidence: 99%

A Descriptive Analysis of Financial Restatements in Malaysia

Qasem¹,

Aripin²,

Hussin³

2017

IJSMS

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This study provides an overview of the issue of financial restatements among Malaysianpublic listed companies by investigating the trend and reasons for financial restatementsfor the period beginning 2005 through to 2014. Based on the Thompson Reuters DataStream database which provides restatement data for 915 Malaysian companies (9,150 company-year observations), detailed analysis shows that there is a total of 1,945 (21.26%) restatements occurring during the period. The highest number of restatement occurrences was in 2010 with 342 cases (17.58%) while the lowest was in 2008 with 41 cases (2.11%). The majority of restatement cases occurred due to changes in accounting policies with more than 75% of financial restatement cases found within four sectors: industrial products, trading and services, consumer products, and technology. The results of the study will be useful to regulating bodies such as Bursa Malaysia, Securities Commission and Malaysian Accounting Standard Board in as much as they highlight the trend and reasons for financial restatements among Malaysian public listed companies. Further investigation could be conducted for companies that regularly change their accounting policies.

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Does information uncertainty affect investors’ responses to analysts’ forecast revisions? An investigation of accounting restatements

Cited by 38 publications

References 32 publications

Abnormal Audit Fees and Restatements

Abnormal Audit Fees and Restatements

The effect of restatements on analyst behavior

A Descriptive Analysis of Financial Restatements in Malaysia

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