Internal Control Quality,Analyst Forecasts And Stock Price Crash Risk

Stock price crash risk refers to the phenomenon of a company’s share price falling sharply in a short period of time,which is common in the case of the development of our capital market.Stock price crash risk will have a very negative impact for investors and enterprises.so it has become one of the hot research topics of scholars at home and abroad.At present,researching about stock price crash risk at home and abroad is mainly from the perspective of agency theory and information asymmetry theory.Their research mainly about management behavior,institutional investor shareholding,information validity on stock price crash risk,etc.they formed a large number of research conclusions.Based on the existing literature,the paper examines the impact of internal control quality on stock price crash risk of enterprises,and examines whether the analyst’s prediction has played an intermediary effect on the impact of internal control quality on t stock price crash risk.Internal controls was designed by management and governance and all employees are required to follow these rules.It can improve business efficiency and ensure financial reporting is reliable.With the continuous development of China’s capital market,the regulatory authorities are also constantly improving the laws and regulations related to internal control,while the construction of internal control has been fully valued by enterprises.Under the dual efforts of macro-policy level and enterprise,the construction of internal control of enterprises in our country has begun to bear fruit.The rules played an active role in corporate governance,restricted the opportunistic behavior of management and promoted the openness and transparency of enterprise information.The research shows that the agency problem and information asymmetry mainly caused by management agent and that causes stock price crash risk.so one of the research questions in this paper is whether effective internal control can reduce stock price crash risk and whether effective internal control reduces the deviation of analyst forecast.As an important information intermediary in capital market,securities analysts play a dual role between enterprises and investors.On the one hand,they are the messengers of information,through their own professional information collection and processing to convey to investors information about the intrinsic value of stocks in order to alleviate market information asymmetry;Analysts participate in the capital market by processing,organizing and transmitting information,thus providing an effective way for the quality of internal control to affect stock price crash risk.Therefore,the other two research topics in this paper focus on the relationship between analyst forecast and stock price crash risk,and whether the analyst’s forecast has played an intermediary effect between in the quality of the internal control and stock price crash risk? Therefore,this paper further tests whether has played an intermediary effect when they issue optimistic and pessimistic forecasts.In order to answer this questions,this paper chose companies in stock markets of Shanghai and Shenzhen from 2013 to 2018 as a research sample.Carry on the theory analysis and literature combing.On the base of information asymmetry theory,agency theory and behavioral finance theory,hypothesis and research model are put forward.Examine the relationship of the quality of internal control,analysts’ forecasts and stock price crash risk.The results of this paper show that:(1)There is a significant negative correlation between the quality of internal control and stock price crash risk.The better the quality of internal controls,the less share price crash risk.(2)There is a positive correlation between the analyst’s forecast and stock price crash risk.The greater the analyst’s forecast error,the higher the risk of stock price collapse.(3)There is a significant negative correlation between the quality of internal control and the analyst’s forecast.It mines the better the quality of internal controls,the less error of analysts predict.(4)Analysts’ forecasts act as partly intermediary between internal controls and stock price crash risk.(5)After dividing the analyst’s forecast sits into optimistic and pessimistic forecasts,it is found to be only partially intermediary when the analyst releases the optimistic earnings forecast.These conclusions suggest that good internal controls increase the accuracy of analysts’ forecasts,improving information asymmetry between investors and businesses,and mitigate the risk of future collapses in corporate share prices.Finally,according to the conclusion,giving advices from the macro level of government and the micro level of enterprises.