Can Analysts’ Attention Reduce Firms’ Propensity To Violate?

The SSE and SZSE have been established for more than 30 years,and China’s capital market has made remarkable achievements,with significant growth in terms of the number of listed companies and the overall volume of the capital market.At the same time,the capital market system has been improved,the quality of listed companies has been raised,and the financial knowledge of investors has been enriched.However,under the prosperity,there are still people who "mess up" the market.The violation of guarantees,connected transactions,misrepresentation of profits,management and major shareholders’ illegal shareholding reduction are still prohibited.As an independent third party between companies and investors,securities analysts play the role of information intermediary and external supervision.By following and conducting field research on listed companies,communicating with customers,suppliers,company management and employees of listed companies,securities analysts are more likely to discover possible business and management problems of enterprises.At the same time,analysts will consider their own reputation,and based on the perspective of maximizing their own interests,they are also more motivated to find or even curb the occurrence of corporate violations,and the attention of analysts gives listed companies intangible pressure to improve internal mechanisms to weaken the tendency of violations.In a review of existing studies,scholars mostly start from the information intermediary role of analysts and believe that analysts reduce the information asymmetry between enterprises and the market.In this paper,we explore the role of analysts’ attention on corporate violations from the perspective of analysts’ external monitoring effect and explore the possible mechanisms of the effect.By selecting listed companies in Shanghai and Shenzhen A-shares from 2012 to 2021 as the sample of inquiry,this paper conducts empirical tests using correlation analysis,mediation mechanism test and Logit regression as well as Poisson regression.It is found that:(1)Analyst attention is significantly and negatively related to corporate violations,the increase of analyst attention can effectively weaken the tendency of corporate violations and reduce the number of corporate violations,and analysts play an effective supervisory role on listed companies.(2)Combined with existing studies,some scholars believe that analyst attention can improve the internal governance of enterprises.After the study of this paper,it is found that the increase of analyst attention can improve the level of internal control of enterprises and inhibit the occurrence of corporate violations,and the improvement of internal control of enterprises is a mechanism path between the two.(3)Further analysis,the differences in the effects of analysts’ attention on irregularities under different ownership backgrounds and different levels of information disclosure of enterprises.This paper finds that analysts’ attention has a lower inhibitory effect on non-compliance in SOEs and a better monitoring effect in non-SOEs.For firms with poor disclosure levels,analysts’ access to information is difficult and monitoring costs are too high to play an effective monitoring role.By replacing the Bivariate Probit model for robustness testing,it is found that the increase in the number of analysts’ attention can suppress the tendency of corporate violations,while increasing the probability of corporate violations being audited.After using the instrumental variables for Iv Probit regression,analysts’ attention can still reduce the tendency of corporate violations,and the above findings remain robust.This paper has some theoretical and practical significance.Theoretically,by studying the relationship between analyst attention and corporate violations and further exploring the mechanism of action between the two,it verifies that the improvement of internal control quality is a mechanism of action for analyst attention to reduce the occurrence of corporate violations,which plays a complementary role in the study of violations in listed companies.In practice,this paper argues that firstly,it is necessary to rectify the root cause and increase the penalty so that companies dare not cross the red line.Second,to ensure the professionalism and independence of analysts and maximize their information transmission and supervision role.