An Empirical Research On The Relationship Between Accounting Quality And Analysts' Earnings Forecasts

Accounting information is an important source for analysts' earnings forecasts. Accounting quality of listed companies will directly affect analysts' earnings forecasts behavior, and then affect investors' evaluations on the companies. So it is meaningful to do a research on the relationship between accounting quality of listed companies and analysts' earnings forecasts, which can improve listed companies' accounting quality, enhance the efficiency of the stock market and protect the interests of individual investors.Based on the data from Wind Financial Terminals (WFT), the paper takes all listed companies concerned by analysts in the stock market from 2004 to 2006 as the research sample. After controlling some factors such as SIZE, UNPREC, EV and so on, the paper uses modified DD model to measure accounting quality to research on the relationship between accounting quality and analysts' earnings forecasts in China. The empirical results show that: (1) Accounting quality has a significant negative impact on the number of analyst following. It means that a listed company with a higher quality of accounting information will attract fewer analysts' concerns. (2) There is a positive correlation between accounting quality and the accuracy of analysts' earnings forecasts, which means that the improvement of accounting quality can enhance the accuracy of analysts' earnings forecasts. (3) There is a negative correlation between accounting quality and the dispersion of analysts' earnings forecasts. It means that analysts' forecasts reports on the same listed company will have a smaller divergence, when the company has a higher accounting quality.There are two innovative points in this paper: (1) Compared with previous studies using disclosure quality, this paper has adopted earnings quality as the substitute variable for accounting quality and expanded the scope of samples, taking all the listed companies concerned by analysts in the stock market as the research sample, not just the listed companies in Shenzhen stock market;(2) The paper has explored the relationship between accounting quality and the dispersion of analysts' earnings forecasts, and found there is a significant negative correlation between them, which fills in the blank of the research on this field in China.