Disclosure of internal control material weaknesses and optimism in analyst earnings forecasts |
| |
| Affiliation: | 1. Florida State University, 1107 W. Call St., Tallahassee, FL 32306-4301, United States;2. Grand Valley State University, 3032 L William Seidman Center, 50 Front Ave SW, Grand Rapids, MI 49504-6424, United States;3. University of Tampa, JS 243, Mailbox O, 401 W. Kennedy Blvd., Tampa, FL 33606, United States;4. Florida State University, 346 RBB, 821 Academic Way, Tallahassee, FL 32306-1110, United States;5. Michigan State University, 632 Bogue St. Rm N220, East Lansing, MI 48824, United States;1. TU Dortmund University, Faculty of Business and Economics, Germany;2. The University of Tampa, Sykes College of Business, Department of Accounting, United States;1. Strategic Security Sciences, Argonne National Laboratory, Ames, IA 50010, United States;2. Ivy College of Business, Iowa State University, Ames, IA 50010, United States;3. Strategic Security Sciences, Argonne National Laboratory, Argonne, IL 60439, United States;1. School of Accountancy and MIS, DePaul University, United States;2. Graduate Institute of Accounting and Department of Finance, National Central University, Taoyuan, Taiwan;3. School of Management, Clark University, United States;1. NHH Norwegian School of Economics, Norway; University of Central Florida, Unites States;2. University of Melbourne, Australia;1. Department of Economics and Finance, Faculty of Management, Comenius University, Address: Odbojárov 10, P.O. Box 95, 820 05 Bratislava, Slovakia;2. Department of Economics and Finance, Faculty of Management, Comenius University, Address: Odbojárov 10, P.O. Box 95, 820 05 Bratislava, Slovakia |
| |
| Abstract: | This paper investigates how analyst forecast optimism is associated with disclosures of internal control material weaknesses (ICMWs) and their remediation under Section 404 of the Sarbanes–Oxley Act (SOX). Drawing on agency theory, I hypothesize that analysts are likely to issue earnings forecasts that are more optimistic for firms with ICMW disclosures than for those without ICMW disclosures. Using a sample of 20,875 firm-year observations with 10-K (10-Q) reports from 2004 to 2018, I find a positive association between ICMW disclosures and analyst forecast optimism. This positive association is partially driven by investors’ inability to unravel analyst forecast bias and analysts’ intentions to curry favor with management for private information. In addition, analysts are found to issue less optimistic forecasts for firms with ICMW remediation disclosures compared with those without ICMW remediation disclosures. A series of propensity score matching and regression analyses are conducted to test the robustness of my inferences. Overall, the paper suggests that analysts have incentives to take the opportunity of firms disclosing ICMWs to bias their forecasts upward for self-interest. The findings have the potential to assist regulators in guiding analyst behavior and educating investors to unravel positive bias in analyst forecasts. |
| |
| Keywords: | Internal control material weaknesses Remediation Analyst forecasts Analyst optimism Investor uncertainty |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
