Does Information Uncertainty Affect Investors’ Responses to Analysts’ Forecast Revisions? An Investigation of Accounting Restatements

Posted: 29 Aug 2010

See all articles by Ran Barniv

Ran Barniv

Kent State University - Department of Accounting

Jian Cao

Florida Atlantic University

Date Written: July 1, 2009

Abstract

Prior studies provide only limited evidence on how and why investors rely on analyst forecasts. We investigate one aspect of this research paradigm by examining investor response to analyst forecast revisions using accounting restatements as a proxy for uncertainty. We find that investors tend to rely more on the information that analyst characteristics convey about forecast accuracy in restatement firms than in non-restatement firms. The evidence also suggests that the level of restatement intensity and the length of reaction window affect investors’ reliance on these characteristics. Further analysis demonstrates that the innovation in forecast revisions also affects the association between investor response and analyst characteristics. Our findings are consistent with increased information uncertainty stimulating investor demand for analyst research.

Keywords: Restatement Announcements, Analyst Forecast Revisions, Analyst Forecast Revisions, Security Returns

JEL Classification: M41, D80, G10

Suggested Citation

Barniv, Ran and Cao, Jian, Does Information Uncertainty Affect Investors’ Responses to Analysts’ Forecast Revisions? An Investigation of Accounting Restatements (July 1, 2009). Journal of Accounting and Public Policy, Vol. 28, No. 4, pp. 328-348, July/August 2009, Available at SSRN: https://ssrn.com/abstract=1666951

Ran Barniv (Contact Author)

Kent State University - Department of Accounting ( email )

P.O. Box 5190
Kent, OH 44242-0001
United States
330-672-1112 (Phone)
330-672-2548 (Fax)

Jian Cao

Florida Atlantic University ( email )

777 Glades Rd.
Boca Raton, FL 33431
United States
561-297-3727 (Phone)

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