Journal article
Do ties still bind? Analyst behaviour after financial restatements
Y Wu, YF Kuang, G Lee, K Zhai
Accounting and Finance | WILEY | Published : 2024
DOI: 10.1111/acfi.13184
Open access
Abstract
We find that, compared to non-connected analysts, analysts with professional connections to a coverage firm (i.e., connected analysts) are more likely to continue covering the firm after it issues a restatement. Furthermore, connected analysts are more likely to issue pessimistic earnings forecasts and to downgrade stock recommendations for the firm after its financial restatement. Our results also reveal the costs and benefits associated with connected analysts' pessimism – a reduced market reaction to the analysts' pessimistic research on the restating firm, and a positive effect on the market's perception of the quality of the analysts' research on non-restating firms.
Grants
Funding Acknowledgements
We acknowledge helpful comments from Gary Monroe (Editor-in-Chief), Mark Wilson (Deputy Editor), and two anonymous reviewers. We also appreciate the comments from Jan Bouwens, Eddy Cardinaels, Chen Chen, Waifong Chua, Lili Dai, Somnath Das, Wayne Guay, Charles Hsu, Andrew Jackson, Stewart Jones, Leye Li, K. C. Lin, Louise Lu, Richard Morris, Ryan Peng, Baljit Sidhu, Stephen Taylor, Rencheng Wang, Yangxin Yu, and seminar participants at Deakin University, University of Melbourne, University of New South Wales, University of Sydney, University of Technology Sydney, and the 2022 Melbourne Accounting Research Symposium. We gratefully acknowledge the grant awarded by the Accounting and Finance Association of Australia and New Zealand (AFAANZ). We appreciate the excellent research assistance by Siru Chen and Yutong Li. Each author contributes equally to the paper. Open access publishing facilitated by The University of Melbourne, as part of the Wiley - The University of Melbourne agreement via the Council of Australian University Librarians.