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Do Opinions on Financial Misstatement Firms Affect Analysts’ Reputation with Investors? Evidence from Reputational Spillovers

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  • LIAN FEN LEE
  • ALVIS K. LO

Abstract

We examine whether opinions on firms subsequently revealed to have misstated earnings affect analysts’ reputation with investors. We find that positive opinions by bullish analysts hurt their reputation, leading investors to react less to their research on non‐misstatement firms after the misstatement revelation (i.e., negative spillovers). We also find that bearish analysts issuing more negative opinions gain reputation and experience positive spillovers. Finally, for analysts who dropped coverage of the misstatement firm before the misstatement revelation, we find no spillovers, which suggests that analysts experience limited reputational gains when they did not issue a public negative opinion.

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  • Lian Fen Lee & Alvis K. Lo, 2016. "Do Opinions on Financial Misstatement Firms Affect Analysts’ Reputation with Investors? Evidence from Reputational Spillovers," Journal of Accounting Research, Wiley Blackwell, vol. 54(4), pages 1111-1148, September.
    • Handle: RePEc:bla:joares:v:54:y:2016:i:4:p:1111-1148
    DOI: 10.1111/1475-679X.12119
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    2. Li, Wanyun, 2022. "Disclosure of internal control material weaknesses and optimism in analyst earnings forecasts," International Journal of Accounting Information Systems, Elsevier, vol. 44(C).

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