Transformations  in
Business & Economics

DOES A FIRMS ACCOUNTING INFORMATION OPACITY AFFECT ACCURACY OF SECURITY ANALYSTS FORECASTING? EVIDENCE FROM CHINA
Yiqian Peng, Mengke Zhang, Xiaosong Zheng

ABSTRACT: In this research, we investigate the relationship between a firms accounting information opacity and security analysts EPS forecasting accuracy using data from Chinese A-share listed firms. We found that the higher the accounting information opacity of a firm, the less effective information is available to security analysts, and analysts forecasting accuracy decreases accordingly. The results are the same whether we use true or accrued earnings management to measure a firms accounting information opacity. In the regression, we also control for firm and year fixed effects and use two-way robust aggregation standard errors in our tests. In addition to the two-way fixed effect treatment of the data with panel data, to address the endogeneity issue, we test our hypothesis by introducing an exogenous instrumental variable - the median value of firm opacity in each years industry. The result confirms our findings are valid and reliable.

KEYWORDS:  opacity, security analyst, forecasting, earnings management.

JEL classification:  C30, M41