The spillover effect of regulatory penalties on management and analysts’ earnings forecasts: Empirical evidence based on directors networks in China

Xin Ding, Wenhao Tan and Yixuan Kang

International Review of Economics & Finance, 2021, vol. 76, issue C, 502-515

Abstract: Regulatory penalty has a spillover effect through director networks. This study examines the spillover effect of information disclosure violation penalties on the bias of management earnings forecast and analysts' earnings forecast for interlocked director firms. Our results document that the penalty significantly increases the bias of the interlocked director firm's management earnings forecast and significantly decreases the accuracy of analysts' earnings forecasts. Moreover, the higher the influence degree of penalties, that is the more the firms sharing interlocked directors have been punished, the greater the impact of penalties on focus firm. The bias of management earnings forecast has a significant partial mediation. These results reveal potential financial risks in the capital market caused by the board network, indicating a need for the China Securities Regulatory Commission (CSRC) to improve the management earnings forecast disclosure policies and strengthening financial supervision.

Keywords: Regulatory penalty; Management earnings forecast; Analysts' earnings forecast; Interlocked directors; Spillover effect (search for similar items in EconPapers)
JEL-codes: G17 G18 M40 M48 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:76:y:2021:i:c:p:502-515

DOI: 10.1016/j.iref.2021.07.003

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