An Analysis of Accounting Frauds and the Timing of Analyst Coverage Decisions and Recommendation Revisions: Evidence from the US

67 Pages Posted: 18 Jan 2013

See all articles by Susan M. Young

Susan M. Young

Fordham University

Emma Y. Peng

Fordham University - Accounting Area

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2013

Abstract

This paper provides a comprehensive exploration of the types of accounting fraud committed by firms over the period 1995-2009. Using detailed data from US SEC Accounting and Auditing Enforcement Releases (AAER), we examine the likelihood and timing of analyst coverage decisions and recommendation revisions related to fraud firms versus firms without accounting fraud. We find that analysts have a higher probability of taking the more severe action of dropping coverage rather than only revising down recommendations for firms with any type of accounting fraud and also for specific egregious types of accounting fraud. Through the use of competing hazards models, we also find that accounting frauds and their egregiousness are positively (negatively) associated with the timeliness of the analysts’ action to drop coverage (revise only). Overall, we find that analysts’ actions may be useful in determining the occurrence of accounting fraud prior to the public announcement of the fraud.

Keywords: accounting fraud, analyst coverage, financial misreporting, recommendations

JEL Classification: M41, M8

Suggested Citation

Young, Susan M. and Peng, Emma Y., An Analysis of Accounting Frauds and the Timing of Analyst Coverage Decisions and Recommendation Revisions: Evidence from the US (January 1, 2013). Fordham University Schools of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=2202393 or http://dx.doi.org/10.2139/ssrn.2202393

Susan M. Young (Contact Author)

Fordham University ( email )

1790 Broadway
Suite 11-13
New York, NY 10019
United States
646.312.8245 (Phone)
646.312.8295 (Fax)

Emma Y. Peng

Fordham University - Accounting Area ( email )

1790 Broadway, 13th FL
New York, NY 10019
United States

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