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Missing Analyst Forecasts and Corporate Fraud: Evidence from China

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Abstract

The relationship between analysts' forecasts and corporate fraud is a vital theoretical and practical question that needs to be clarified. Based on a strict distinction between negative performance gaps relative to analyst forecasts (negative forecast gaps hereinafter) and analyst coverage, this study investigates the influence of analyst forecasts on corporate fraud from a panoramic perspective. Using panel data on listed companies in China from 2008 to 2019, we find that short-term performance pressure caused by negative forecast gaps is significantly positively correlated with firms’ possibility for fraudulent behavior. However, this positive correlation is weaker in state-owned enterprises than in their non-state-owned counterparts. Further, as a key external governance mechanism, analyst coverage enhances the negative moderator effect of state ownership on the positive relationship between negative forecast gaps and the likelihood of corporate fraud.

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  1. School of Business Administration, South China University of Technology, 381 Wushan Road, Tianhe District, Guangzhou, Guangdong, China

    Liuyang Ren & Liangyong Wan

  2. School of Management, Guangdong University of Technology, 161 Yinglong Road, Tianhe District, Guangzhou, Guangdong, China

    Xi Zhong

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  1. Liuyang Ren
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Ren, L., Zhong, X. & Wan, L. Missing Analyst Forecasts and Corporate Fraud: Evidence from China. J Bus Ethics 181, 171–194 (2022). https://doi.org/10.1007/s10551-021-04837-w

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