Research On The Relationship Between Internal Control Quality And Analyst Forecast Revision

Information disclosure is a critical determinant of portfolio allocation in capital markets. Securities analysts are important “information traders” in capital market and their earnings forecast behavior is influenced by information disclosure on the market. As an important part of information disclosure, the disclosure of quality of internal control not only influences the quality of accounting information released, but also has an important impact on the behavior of analysts forecasting, which ultimately affects the effectiveness of entire capital market. Compared with analyst forecast, forecast revisions may reveal even more information to the investors in the security market. Therefore,from a dynamic perspective, this thesis sheds light on the relationship between internal control quality and analyst forecast revision.A-share listed companies in stock markets of Shanghai and Shenzhen between 2008 and 2014 are selected as empirical samples. Under Based on the frameworks of Asymmetric Information Theory and Signaling Theory, this study explores whether the internal control quality can influence analyst forecast revision, as well as the moderating effect of equity structure.The result shows that internal control quality is positively related to analyst forecast revision, and different attributes of the equity structure have different levels of impact on the above relationship. Specifically speaking, higher disclosure level of internal control quality certainly gives rise to better accuracy of analyst forecast revision, and this link is strengthened with state-owned enterprises and the firms that have more institutional equity holdings. In another word, if information releases involving internal control quality is lacking or having more defects, adjustment effectiveness and accuracy of analyst forecast revision will decrease, and this relationship will be weakened with state-owned enterprises and the firms that have more institutional equity holdings. Therefore,this paper deepens the research on the correlation of internal control and securities analyst forecasting.