The Relationshibetween The Internal Control Information Disclosure And Analysts’ Earnings Forecasts

Since the21st century, with the exposure of America’s "Enron event", a series ofshocking financial fraud caused heavy loss to the capital market, at the same time, italso gave investors a serious blow. In this context, the United States enacted theSarbanes-Oxley Act, since then the United States began to enter the stage of mandatorydisclosure of internal control information disclosure system. For a long time, whethermanagers or investors gave more attention to internal control, the status of internalcontrol in enterprise management was increasingly highlighted. These years, ourcountry has promulgated many laws and regulations, internal control disclosure ofinformation had gradually become the focus of the study of theoretical and practicalstudies. Although we have the largest number of investors in the securities market ofChina, only a few have professional knowledge. The information asymmetry occurs incapital market makes many investors turn to relying on the analysts. As a provider, theanalysts expect the company to provide more transparent, complete and true informationin order to forecast accurately, and a stronger internal control system is extremelyinseparable to the enterprise. In the early stages of the development of our listedcompany and securities market, the internal control as a new thing, hadn’t receivedsufficient attention. Investors ignored the requirements of internal control informationdisclosure, and the relationship between the internal control information disclosure andanalysts’ earnings forecasts is not very clear. With the improvement of our securitiesmarket environment, the internal control information has become an important part ofthe listed company information disclosure system. Therefore, the research on therelationship benefits the analysts to play the regulatory role of the securities market, andensure the full circulation of securities market information, so as to promote the healthydevelopment of capital market. It has important practical significance to the newlydeveloped securities analyst industry.This paper combines normative research and empirical research method. Firstly,the paper describes the research and notices the issue, namely the correlation of theinternal control information disclosure and analyst earnings forecasts, and thenintroduces the concepts and roles of internal control information disclosure and analysts’earnings forecasts. Then based on the effective capital market theory, asymmetricinformation theory and signaling theory which are used to express internal control information disclosure and analysts’ earnings forecasts, we put forward researchhypothesis and establish the model. In this paper, we set up the quality of internalcontrol information disclosure evaluation system from two aspects: Relevance andreliability. We use the number of analysts’ forecasts, accuracy of analysts’ earningsforecasts and dispersion of analysts’ earnings forecasts to measure characteristics ofanalysts’ earnings forecast. We have studied of the Shenzhen Stock Exchange from2009to2011, using statistical analysis, correlation analysis and regression analysismethod to research model hypothesis test. In order to enhance the robustness of theconclusion, this paper also has carried on the robustness test, the result is consistentwith the master test.The empirical results show that:(1) The quality of internal control informationdisclosure has a significant positive impact on the number of analyst following. Itmeans that a listed company which has higher quality of internal control informationdisclosure will attract more analysts’ attentions.(2)There is a positive correlationbetween the internal control information disclosure and the accuracy of analysts’earnings forecasts, which means that the improvement of the quality of internal controlinformation disclosure can enhance the accuracy of analysts’ earnings forecasts.(3)There is a negative correlation between the internal control information disclosure andthe dispersion of analysts’ earnings forecasts. It means that the improvement of thequality of internal control information disclosure can reduce the differences of analysts’earnings forecasts. Based on the three findings, we put forward many policyrecommendations: the listed company must improve their quality of internal controlinformation disclosure to enhance the authenticity and accuracy of financial reportinginformation, so as to improve the accuracy of earnings forecasts. Securities regulatorycommission should improve the system of internal control information disclosure inorder to make sure of the development on the whole securities markets.