Research On The Influence Of Bias Of Earnings Forecasts And Firm Idiosyncratic Risk

The high-quality development of the firm largely depends on its ability to assess and resolve the internal and external risks it faces.Among the external risks,in addition to the system risks that cannot be controlled by the firm itself due to external industry factors,the management pays attention to the nonsystematic risks,namely,the firm idiosyncratic risk.Scholars have explored the influencing factors from the perspectives of internal information disclosure and external information environment.In the contemporary system of governance that separates two powers,the establishment of high-quality information disclosure system is crucial for releasing heterogeneity information of the firm,it also serves as a significant approach to prevent and manage possible risks.As an important part of the information disclosure system,the earnings forecasts is also the authoritative disclosure of the operating results in the forecast period.Therefore,the release of high-quality earnings forecasts help to build a robust information disclosure system.Bias of earnings forecasts measure the degree of deviation between management’s predicted net profit and actual net profit,which can better quantify the quality of earnings forecasts.However,there is limited literature on using bias of earnings forecasts to measure the quality of earnings forecast in existing research on earnings forecast quality and firm idiosyncratic risk.This thesis aims to examine the effect of bias of earnings forecast on firm idiosyncratic risk by analyzing and testing a sample of A-share listed firms from 2009 to 2021.The results show:(1)Bias of earnings forecasts will exacerbate firm idiosyncratic risk;(2)Compared with the "bad news" performance earnings forecasts,the effect is more significant in the "good news" sample.Moreover,on the one hand,this thesis starts from the internal and external governance mechanisms on the relationship between bias of earnings forecasts and firm idiosyncratic risk.The results indicate that the high attention of analysts and corporate transparency can mitigate the impact of "good news" performance earnings forecasts bias on firm idiosyncratic risk.On the other hand,in terms of the mechanism,the thesis reveals that the "good news" performance earnings forecast bias can exacerbate firm idiosyncratic risk by enhancing heterogeneous beliefs among investors.The above conclusions are still valid after the robustness test.This thesis complements the research on the economic consequences of the bias of earnings forecasts and the type of earnings forecasts’ bias,and provides a new perspective for exploring ways to mitigate the firm idiosyncratic risk.At the same time,it provides theoretical support for standardizing the disclosure of the earnings forecasts to mitigate the firm idiosyncratic risk.