IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v55y2023ipas1544612323002404.html
   My bibliography  Save this article

The impact of financial restatements on sell-side recommendation accuracy

Author

Listed:
  • Umar, Muhammad
  • Mirza, Nawazish
  • Ribeiro-Navarrete, Samuel

Abstract

Financial restatements are considered a drag on earnings quality and in this paper, we assess their relationship with the target price accuracy. We constitute a comprehensive sample of firms from BRICS with sell-side coverage for eleven years. Our results suggest that restatements negatively influence the target price precision. Across the different types of recommendations, we observe the negative relationship to be persistent for firms in Buy and Hold categories, while for the Sell recommendations, the relationship was positive. Overall results remained robust for different constructs of forecast accuracy. These findings have important implications for retail and institutional investors and regulators.

Suggested Citation

  • Umar, Muhammad & Mirza, Nawazish & Ribeiro-Navarrete, Samuel, 2023. "The impact of financial restatements on sell-side recommendation accuracy," Finance Research Letters, Elsevier, vol. 55(PA).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002404
    DOI: 10.1016/j.frl.2023.103868
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612323002404
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2023.103868?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Brian Hogan & Colin Reid, 2022. "The impact of stakeholder management on restatement disclosure transparency," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 21(3), pages 174-203, April.
    2. Pan, Changchun & Sun, Tiezhu & Mirza, Nawazish & Huang, Yuzhe, 2022. "The pricing of low emission transitions: Evidence from stock returns of natural resource firms in the GCC," Resources Policy, Elsevier, vol. 79(C).
    3. John J. Wild & Jonathan M. Wild, 2022. "Explanatory power of earnings for returns: nonstationarity, disaggregation and timeliness," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 21(4), pages 320-340, July.
    4. Umar, Muhammad & Mirza, Nawazish & Rizvi, Syed Kumail Abbas & Naqvi, Bushra, 2022. "ESG scores and target price accuracy: Evidence from sell-side recommendations in BRICS," International Review of Financial Analysis, Elsevier, vol. 84(C).
    5. Benkraiem, Ramzi & Ben-Nasr, Hamdi & Nechi, Salem & Rjiba, Hatem, 2023. "Stock price crash risk and leverage dynamics: Evidence from the GCC countries," Finance Research Letters, Elsevier, vol. 54(C).
    6. Liu, Prof Haiyue & Wang, Yile & Xue, Dr Rui & Linnenluecke, Prof Martina & Cai, Dr Cynthia Weiyi, 2022. "Green Commitment and Stock Prick Crash Risk," Finance Research Letters, Elsevier, vol. 47(PA).
    7. Gerritsen, Dirk F., 2015. "Security analysts’ target prices and takeover premiums," Finance Research Letters, Elsevier, vol. 13(C), pages 205-213.
    8. Huang, Hua-Wei Solomon & Feng, Zhi-Yuan Andy & Zaher, Angie Abdel, 2020. "Fair value and economic consequences of financial restatements," Finance Research Letters, Elsevier, vol. 34(C).
    9. John J. Wild & Jonathan M. Wild, 2022. "Explanatory power of earnings for returns: nonstationarity, disaggregation and timeliness," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 21(4), pages 320-340, July.
    10. Rizvi, Syed Kumail Abbas & Naqvi, Bushra & Boubaker, Sabri & Mirza, Nawazish, 2022. "The power play of natural gas and crude oil in the move towards the financialization of the energy market," Energy Economics, Elsevier, vol. 112(C).
    11. Mashukudu Hartley Molele & Janine Mukuddem-Petersen, 2020. "Emerging market currency risk exposure: evidence from South Africa," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 21(2), pages 159-179, May.
    12. François Aubert & Jeff Wang & Gary Grudnitski, 2019. "Convergence Consensus Analyst Earnings Estimates and Option Pricing in Modeling Material Accounting Misstatements," Post-Print hal-02549206, HAL.
    13. Quang Phung Thanh, 2022. "Economic effects of green bond market development in Asian economies," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 23(5), pages 480-497, October.
    14. Larisa Yarovaya & Nawazish Mirza, 2022. "The price reaction and investment exposure of equity funds: evidence from the Russia–Ukraine military conflict," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 23(5), pages 669-676, September.
    15. Tobias Filusch, 2020. "Risk assessment for financial accounting: modeling probability of default," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 22(1), pages 1-15, October.
    16. Anja Vinzelberg & Benjamin Rainer Auer, 2022. "A comparison of minimum variance and maximum Sharpe ratio portfolios for mainstream investors," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 23(1), pages 55-84, January.
    17. Mariya Gubareva, 2021. "How to estimate expected credit losses – ECL – for provisioning under IFRS 9," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 22(2), pages 169-190, June.
    18. Naqvi, Bushra & Mirza, Nawazish & Rizvi, Syed Kumail Abbas & Porada-Rochoń, Małgorzata & Itani, Rania, 2021. "Is there a green fund premium? Evidence from twenty seven emerging markets," Global Finance Journal, Elsevier, vol. 50(C).
    19. Shan, Shan & Umar, Muhammad & Mirza, Nawazish, 2022. "Can robo advisors expedite carbon transitions? Evidence from automated funds," Technological Forecasting and Social Change, Elsevier, vol. 180(C).
    20. Arun Kumar Misra & Molla Ramizur Rahman & Aviral Kumar Tiwari, 2023. "A risk-neutral approach to the RAROC method of loan pricing using account-level data," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 24(2), pages 212-225, January.
    21. Brian Hogan & Colin Reid, 2022. "The impact of stakeholder management on restatement disclosure transparency," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 21(3), pages 174-203, April.
    22. David B. Bryan & Terry W. Mason, 2022. "Earnings autocorrelation and accounting restatements," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 21(3), pages 154-173, April.
    23. David B. Bryan & Terry W. Mason, 2022. "Earnings autocorrelation and accounting restatements," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 21(3), pages 154-173, April.
    24. François Aubert & Jeff J. Wang & Gary Grudnitski, 2019. "Convergence consensus analyst earnings estimates and option pricing in modeling material accounting misstatements," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 18(1), pages 134-156, February.
    25. Li, Yan & Huo, Jiale & Xu, Yongan & Liang, Chao, 2023. "Belief-based momentum indicator and stock market return predictability," Research in International Business and Finance, Elsevier, vol. 64(C).
    26. Jundong (Jeff) Wang, 2020. "Does analyst forecast dispersion represent investors’ perceived uncertainty toward earnings?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 19(3), pages 289-312, April.
    27. François Aubert & Jeff J. Wang & Gary Grudnitski, 2019. "Convergence consensus analyst earnings estimates and option pricing in modeling material accounting misstatements," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 18(1), pages 134-156, February.
    28. Jundong (Jeff) Wang, 2020. "Does analyst forecast dispersion represent investors’ perceived uncertainty toward earnings?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 19(3), pages 289-312, April.
    29. Chen, Zhonglu & Mirza, Nawazish & Huang, Lei & Umar, Muhammad, 2022. "Green Banking—Can Financial Institutions support green recovery?," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 389-395.
    30. Liang, Chao & Umar, Muhammad & Ma, Feng & Huynh, Toan L.D., 2022. "Climate policy uncertainty and world renewable energy index volatility forecasting," Technological Forecasting and Social Change, Elsevier, vol. 182(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lang, Qiaoqi & Ma, Feng & Mirza, Nawazish & Umar, Muhammad, 2023. "The interaction of climate risk and bank liquidity: An emerging market perspective for transitions to low carbon energy," Technological Forecasting and Social Change, Elsevier, vol. 191(C).
    2. Chen, Zhonglu & Umar, Muhammad & Su, Chi-Wei & Mirza, Nawazish, 2023. "Renewable energy, credit portfolios and intermediation spread: Evidence from the banking sector in BRICS," Renewable Energy, Elsevier, vol. 208(C), pages 561-566.
    3. Dai, Zhifeng & Luo, Zhuang & Liu, Chang, 2023. "Dynamic volatility spillovers and investment strategies between crude oil, new energy, and resource related sectors," Resources Policy, Elsevier, vol. 83(C).
    4. Rahat, Birjees & Nguyen, Pascal, 2023. "Does ESG performance impact credit portfolios? Evidence from lending to mineral resource firms in emerging markets," Resources Policy, Elsevier, vol. 85(PB).
    5. Umar, Muhammad & Mirza, Nawazish & Rizvi, Syed Kumail Abbas & Naqvi, Bushra, 2022. "ESG scores and target price accuracy: Evidence from sell-side recommendations in BRICS," International Review of Financial Analysis, Elsevier, vol. 84(C).
    6. Wang, Xiang & Yin, Jian & Yang, Yao & Muda, Iskandar & Abduvaxitovna, Shamansurova Zilola & AlWadi, Belal Mahmoud & Castillo-Picon, Jorge & Abdul-Samad, Zulkiflee, 2023. "Relationship between the resource curse, Forest management and sustainable development and the importance of R&D Projects," Resources Policy, Elsevier, vol. 85(PA).
    7. Su, Chi-Wei & Mirza, Nawazish & Umar, Muhammad & Chang, Tsangyao & Albu, Lucian Liviu, 2022. "Resource extraction, greenhouse emissions, and banking performance," Resources Policy, Elsevier, vol. 79(C).
    8. Wang, Haiyan & Mirza, Nawazish & Umar, Muhammad & Xie, Xin, 2023. "Climate change and blue returns: Evidence from Niche firms in China," Finance Research Letters, Elsevier, vol. 56(C).
    9. Shan, Shan & Mirza, Nawazish & Umar, Muhammad & Hasnaoui, Amir, 2023. "The nexus of sustainable development, blue financing, digitalization, and financial intermediation," Technological Forecasting and Social Change, Elsevier, vol. 195(C).
    10. Zheng, ShiYong & Liu, Hua & Hafeez, Muhammad & Wang, Xiaofeng & Fahad, Shah & Yue, Xiao-Guang, 2023. "Testing the resource curse hypothesis: The dynamic roles of institutional quality, inflation and growth for Dragon," Resources Policy, Elsevier, vol. 85(PA).
    11. Mirza, Nawazish & Umar, Muhammad & Mangafic, Jasmina, 2023. "Covid-19 vaccines and investment performance: Evidence from equity funds in European Union," Finance Research Letters, Elsevier, vol. 53(C).
    12. Wang, Fanyi & Ma, Wanying & Mirza, Nawazish & Altuntaş, Mehmet, 2023. "Green financing, financial uncertainty, geopolitical risk, and oil prices volatility," Resources Policy, Elsevier, vol. 83(C).
    13. Fang, Shuya & Fang, Wei, 2023. "How fiscal decentralization and trade diversification influence sustainable development: Moderating role of resources dependency," Resources Policy, Elsevier, vol. 84(C).
    14. Zheng, Jingling & Li, Zeyun & Ghardallou, Wafa & Wei, Xuecheng, 2023. "Natural resources and economic performance: Understanding the volatilities caused by financial, political and economic risk in the context of China," Resources Policy, Elsevier, vol. 84(C).
    15. Du, Yuqiu & Wang, Wendi, 2023. "The role of green financing, agriculture development, geopolitical risk, and natural resource on environmental pollution in China," Resources Policy, Elsevier, vol. 82(C).
    16. Peng, Lijuan & Liang, Chao, 2023. "Sustainable development during the post-COVID-19 period: Role of crude oil," Resources Policy, Elsevier, vol. 85(PA).
    17. Lin, Renzao & Wang, Zhe & Gao, Chunjiao, 2023. "Re-examining resources taxes and sustainable financial expansion: An empirical evidence of novel panel methods for China's provincial data," Resources Policy, Elsevier, vol. 80(C).
    18. Xu, Yongan & Duong, Duy & Xu, Hualong, 2023. "Attention! Predicting crude oil prices from the perspective of extreme weather," Finance Research Letters, Elsevier, vol. 57(C).
    19. Wang, Yong & Duan, Yubin & Dou, Jiali, 2023. "Does resource-richness cause resources curse in financial market? A sustainable development overview for RCEP economies," Resources Policy, Elsevier, vol. 80(C).
    20. Huang, Tianwei & Yang, Lei & Liu, Yufei & Liu, Haibing, 2023. "Dutch disease revisited: China's provincial data perspective with the role of green finance and technology peak," Resources Policy, Elsevier, vol. 83(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002404. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.