Do ties still bind? Analyst behaviour after financial restatements

We find that, compared to non‐connected analysts, analysts with professional connections to a coverage firm (i.e., connected analysts) are more likely to continue covering the firm after it issues a restatement. Furthermore, connected analysts are more likely to issue pessimistic earnings forecasts...

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Bibliographic Details
Published inAccounting and finance (Parkville) Vol. 64; no. 2; pp. 1361 - 1396
Main Authors Wu, Yi (Ava), Kuang, Yu Flora, Lee, Gladys, Zhai, Kerui
Format Journal Article
LanguageEnglish
Published Clayton Blackwell Publishing Ltd 01.06.2024
Subjects
analyst coverage
analyst earnings forecasts
analyst stock recommendations
approach–avoidance conflict
financial restatements
professional connections
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Summary:We find that, compared to non‐connected analysts, analysts with professional connections to a coverage firm (i.e., connected analysts) are more likely to continue covering the firm after it issues a restatement. Furthermore, connected analysts are more likely to issue pessimistic earnings forecasts and to downgrade stock recommendations for the firm after its financial restatement. Our results also reveal the costs and benefits associated with connected analysts' pessimism – a reduced market reaction to the analysts' pessimistic research on the restating firm, and a positive effect on the market's perception of the quality of the analysts' research on non‐restating firms.
Bibliography:Yi (Ava) Wu, Yu Flora Kuang, Gladys Lee and Kerui Zhai contributed equally to this study.
ISSN:0810-5391
1467-629X
DOI:10.1111/acfi.13184