Missing Analyst Forecasts and Corporate Fraud: Evidence from China

Liuyang Ren (), Xi Zhong () and Liangyong Wan ()
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Liuyang Ren: South China University of Technology
Xi Zhong: Guangdong University of Technology
Liangyong Wan: South China University of Technology

Journal of Business Ethics, 2022, vol. 181, issue 1, No 11, 194 pages

Abstract: Abstract The relationship between analysts' forecasts and corporate fraud is a vital theoretical and practical question that needs to be clarified. Based on a strict distinction between negative performance gaps relative to analyst forecasts (negative forecast gaps hereinafter) and analyst coverage, this study investigates the influence of analyst forecasts on corporate fraud from a panoramic perspective. Using panel data on listed companies in China from 2008 to 2019, we find that short-term performance pressure caused by negative forecast gaps is significantly positively correlated with firms’ possibility for fraudulent behavior. However, this positive correlation is weaker in state-owned enterprises than in their non-state-owned counterparts. Further, as a key external governance mechanism, analyst coverage enhances the negative moderator effect of state ownership on the positive relationship between negative forecast gaps and the likelihood of corporate fraud.

Keywords: Negative forecast gaps; Corporate fraud; Analyst coverage (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10551-021-04837-w

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