The Relationship Of Audit Quality And Accuracy Of Analyst Earnings Forecast

The industry of securities analyst industry started in 1990s.Although the existence is shorter than that in western developed countries,in recent years,it has developed very fast with the development of the capital market.As an important information intermediary in capital market,analyst plays an important role in alleviating information asymmetry in the capital market and improving the operating efficiency of the capital market.However,according to the analyst industry report in 2011,the accuracy of analyst reports arouse suspicious whether they perform their duty diligently.The annual report issued by the listing corporation is one of the important sources for earnings forecast by analysts,so the quality of annual report disclosure will affect the accuracy of the forecast.From the perspective of capital market information flow,another information intermediary,CPA is in the upper reaches of the analyst,namely before the annual reports published,it must be audited by CPA.And the responsibility of CPA is to ensure the annual reports has reflect the financial condition of company truly and fairly.The quality of audit service provided by CPA will affect the quality of the disclosed financial information.Therefore whether audit quality will influence analyst earning forecast is the topic discussed in this paper.Besides,studies have shown that audit can inhibit the management's earnings management behavior then improve the quality of financial information.So earnings management will be introduced to discuss how audit quality can react to analyst earnings forecast accuracy.Qualitative and quantitative research methods are adopted in this paper.The second part is literature review.In this part.the research object of this paper,audit quality and analysts' earnings forecasts are reviewed in this paper.Then the third part define the concept of audit quality,earnings management,securities analyst and introduced the related theories.Based on the theory analysis,three hypotheses are issued in the beginning of fourth part,namely the audit quality is positively correlated with the accuracy of analyst earnings forecast,audit quality is negatively related with earnings management,earnings management plays a mediating effecthow audit quality influence the accuracy of analyst forecast.On the basis of qualitative analysis,the following two part is research design and empirical results analysis which is based quantitative research.Based on the literature review,the measurement of main variables,analyst earnings forecast accuracy,earnings management,audit quality are defined and the proper control variables are selected in the fourth part.Then the three models are constructed to test the hypothesis.The fifth part isempiricalanalysis based on the data from Shanghai and Shenzhen A-share listed companies in 2010-2015.The method includesdescriptive statistical analysis,correlation analysis,regression analysis and robustness test.The last part is conclusion and policy recommendations.Through the analysis,this paper draws the following three conclusions:first.by providing high quality audit service,the accuracy of analyst earning forecast can increase;second,CPA can significantly inhibit the earning management of managers by providing high quality audit services;third,CPA by providing the high quality audit services to improve the accuracy of analyst earnings forecast is partly completed by inhibiting the managers' behavior of earning management.Finally,On the basis of this,the corresponding policy recommendations for the CPA,analysts and investors are been issued.The innovation of this paper is mainly reflected in two aspects.One is the measure of audit quality.Some indicators from the perspective CPA and accounting firms are been selected to simulate the audit quality by using the principal component analysis.And the two measure are used in empirical analysis and robustness test.The second is that earning management is introduced to discuss how audit quality influence the accuracy of analyst forecast.And it find that earning management plays an part-intermediary role in this process.The deficiencies of this paper lies in following three aspect.First,it don't distinguish the role of accounting earing management and actual earning management further.Second,in the model construction part,the control variables are mainly select based on the previous research and may ignore some other variables.Third,the indicators used to measure audit quality are mainly data in 2015,while the sample data is 2010-2015.So there may exist gap.And some factors may not be included due to the restriction of data availability.