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The spillover effect of regulatory penalties on management and analysts’ earnings forecasts: Empirical evidence based on directors networks in China

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  • Ding, Xin
  • Tan, Wenhao
  • Kang, Yixuan

Abstract

Regulatory penalty has a spillover effect through director networks. This study examines the spillover effect of information disclosure violation penalties on the bias of management earnings forecast and analysts' earnings forecast for interlocked director firms. Our results document that the penalty significantly increases the bias of the interlocked director firm's management earnings forecast and significantly decreases the accuracy of analysts' earnings forecasts. Moreover, the higher the influence degree of penalties, that is the more the firms sharing interlocked directors have been punished, the greater the impact of penalties on focus firm. The bias of management earnings forecast has a significant partial mediation. These results reveal potential financial risks in the capital market caused by the board network, indicating a need for the China Securities Regulatory Commission (CSRC) to improve the management earnings forecast disclosure policies and strengthening financial supervision.

Suggested Citation

  • Ding, Xin & Tan, Wenhao & Kang, Yixuan, 2021. "The spillover effect of regulatory penalties on management and analysts’ earnings forecasts: Empirical evidence based on directors networks in China," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 502-515.
    • Handle: RePEc:eee:reveco:v:76:y:2021:i:c:p:502-515
    DOI: 10.1016/j.iref.2021.07.003
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    1. Li, Hailing & Li, Yuxin & Zhang, Hua, 2023. "The spillover effects among the traditional energy markets, metal markets and sub-sector clean energy markets," Energy, Elsevier, vol. 275(C).

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    More about this item

    Keywords

    Regulatory penalty; Management earnings forecast; Analysts' earnings forecast; Interlocked directors; Spillover effect;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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