Research On The Interaction Mechanisams Between Management Earnings Forecasts And Analyst Forecasts

As two main resources of forward-looking earnings information of listed firms, the interaction between the management earnings forecasts and analyst forecasts can provide incremental information to capital market, reduce the information asymmetry, which in turn, plays a key role in improving the information environment of listed firms as well as stabilizing the stock market.This dissertation investigates the interaction mechanism between the two in the spirit of unraveling the characteristics of the forward-looking earnings information disclosure environment of Chinese listed firms based on the feature of Chinese capital market and institutional background. The results will provide empirical evidences that help monitors establish related policies so as to promote a healthy and promising future of Chinese stock market.There are eight chapters in this dissertation. Chapter I is introduction, which introduces the research question, research framework, method, innovations and related concepts. Chapter II is literature review. Chapter III describes the unique institutional background of Chinese forward-looking earnings information disclosure environment that including the development of management earnings forecasts rules and the history of analysts in China. Chapter IV to Chapter VII is empirical research, among which, Chapter IV to Chapter VI exam the impacts of analysts on mandatory forecasts, voluntary forecasts, and forecasts characteristics separately. Chapter VII discusses how the management earnings forecasts affect analyst forecast revision and accuracy. Chapter VIII concludes this dissertation while pointing out the limitation and future research questions.The main conclusions of the dissertation are listed as below:(1) With the restriction of management earnings forecasts rules, there are about 15% Chinese listed firms are law-breakers and about 20% are voluntary forecasters. Every year, on average, there are about 60% of Chinese listed firms disclose their earnings forecasts. Meanwhile, the analysts coverage of Chinese listed firms are experienced a rapid growth year by year, there are about 90% listed firms are followed by analysts by now. At the end of 2012, 63% of listed firms provide both management earnings forecasts and analyst forecasts during the same forecasting period. There is a remarkable difference between management earnings forecasts and analyst forecasts on disclosure timeliness. On average, about 88% of analyst forecasts are disclosed before management earnings forecasts. The data indicates that the market expectations from analyst forecasts will have greater impacts on capital market and management earnings forecasts in a long horizon. What’s more, the forecast accuracy and the probability for analysts to revise their forecasts are relatively low.(2) Analyst coverage can reduce the violation of management earnings forecasts significantly. Controlling for the analyst coverage, the effect is more pronounced for “Star analysts”, analysts from the top brokers, and analyst forecasts with lower dispersion and less error. However, the effects do not exist among the listed firms that supervised more effected, which suggest that the corporate governance and monitoring role of analysts on management earnings forecasts only effected when governance is week.(3) Analyst coverage also has the impact to stimulate voluntary forecasts in China, which works in three ways: Pessimistic analyst forecasts bias, diminish the effects of proprietary cost on voluntary disclosure and as the substitution or supplements of corporate governance to lower the agency costs.(4) The pessimistic analyst forecasts bias could encourage listed firms disclose earnings forecasts more timely and accurate to correct the market expectation of earnings; managers will make more précised forecasts when analyst forecasts dispersions are high.(5) The characteristics of management earnings forecasts play a key role in determining analysts forecast revisions. The motivation of analysts forecast revision is getting stronger as the increase of management earnings forecasts accuracy and precision. Inconsistent with the current literature, the associate between management earnings forecasts timeliness and analyst forecasts revisions are positive. The matching results further show that, analyst can incorporate management earnings forecasts into their forecasts to lower the forecast errors, however, the results also suggest that analysts are just simply mimic managers’ forecasts.The innovations of this paper are specified as follows.①This paper initially propose the feature of forward-looking earnings information of Chinsese listed firms, pointing out the differences on disclosure timeliness between management earnings forecasts and analyst forecasts and the effect on the interaction mechanism between the two. ②It extends the research framework of corporate governance by documenting that analyst coverage can be viewed as an important source of external goverance mechanism to monitor manager earnings forecast. ③It discusses the mediator role of analysts play in the relationship between propriety cost and voluntary information disclosure.④It unreavling the unique interaction mechanisms between management earnings forecasts and analyst forecasts in China.This paper sheds new light on the research on the relationship between analyst forecasts and management earnings forecasts in China as well as helping the government get better understanding of the interaction mechanism between the two so as to make information disclosure policy more efficiently.