Empirical Research On Management Irregularities Forecast And Analyst Earnings Forecast

With the development of China Securities Market, the predictive financial information,especially the earnings forecast information, is more and more important. Managementperformance forecast and analyst earnings forecasts are two ways for investors to access thecompany’s future earnings information. Performance forecast is the management’s forecast forthe profitability of a company in a specific accounting period, which is the important publicinformation. Analyst forecast is the incremental information to the market about the company’sfuture profitability, which is made by securities analysts’ interpretation of public and privateinformation. Certainly, Management and analyst earnings forecasts both make contribution toresolve asymmetric information problems and improve the efficiency of resource allocation ofthe capital markets.The separation of ownership and management rights improves the information asymmetryand agency costs, so that management has the motive to forecast illegally. Irregularities thatincrease analysts’ information risk. Also, analysts faced with the Double Principal pressure ofbroker and the client company, maybe published unbiased prediction in order to curry favorwith management. In China’s emerging capital market, the management’s irregularities howimpact analysts’ forecast behavior, which is the focus of this paper.Based on the relevant literature and background combined with our unique system，thispaper analyzed the management’s irregularities, such as “no notice”,“mistake notice”,“delayednotice” and “change face”, how impact Analyst Following and the quality of earnings forecasts.Selected the sample of the listed companies of Shanghai and Shenzhen stock markets form2009to2011, based on the descriptive statistics and correlation analysis, choose the analystfollowing, analyst forecast error and dispersion as the dependent variable to make multipleregression analysis. Then, choose the information disclosure evaluation index, which suppliedby Shenzhen Stock Exchange, as a replacement variable to make the robustness test.Descriptive statistics showed that management tend to disclose good news; the proportionof illegal disclosure decreased, and analyst earnings forecasts have the tendency to optimism.Correlation and regression analysis showed that there is a significant effect betweenmanagement’s irregularities and analyst forecasts behavior. The main conclusions are as follows:when management made the illegally performance forecasts, the number of analysts following would reduce, the accuracy of analysts’ earnings forecast would decline and the divergencewould improve. This conclusion illustrate that securities analysts can identify the managementof opportunistic behavior at a certain extent, but due to the uncertainty of performance forecastinformation and the inherent conflict of interest, the earnings forecast has generally optimisticdeviation.