Title : Types of politically connected firms and analysts' earnings forecast
Authors:
- Khairul Anuar Kamarudin
- Wan Adibah Wan Ismail
- Harymawan Faith
- ROHAMI SHAFIE
Department : Accounting
Journal Name : Journal of Applied Accounting Research
Kinds of Journal : Q1
Keywords : Corporate Governance, Political Connection, Forecast Accuracy, Forecast Dispersion, Government Linked Companies
Abstract:
PURPOSE -This Study Examineed the Effect of Different Types of Politically Connected (PCON) Malaysian Firms on Analyst 'Forecast Accuracy and Dispersion. Design/Methodology/Approach-The Study Identifications Different Types of PCON Firms according to Wong and Hooy's (2018) Classification, which divided political connections into Government-Linked Companies (GLCS) leaders. The sample covered the period 2007-2016, for which earnings forecast data were obtained from the institutional brokers' estimate system (IBES) database and financial data were extracted from Thomson Reuters Fundamentals. We deleted any market consensus estimates made by less than three analysts and/or firms with less than three years of analyst forecast information to control for the impact of individual analysts' personal attributes. Finding the Study Found that PCon firms were associated with lower analyst forecast accuracy and higher forecast dispersion. The effect was more salient in glcs than in other pcon firms, either through families, business ties or boards of directors. Further Analyses showed that PCon firms - in particular GLCS - were associated with more aggressive reporting of earnings and poorer quality of accruals, hence providing inadequate information for analysts to produce accurates and less dispersed earnings forecasts. The results were robust even after addressing endogeneity issues. Research Limitations/Implications - This Study Found New Evidence of the Impact of Different Types of PCon Firms in Exacerbating Information Asymmetry, which was not addressing in prior studies. Practical Implications-This study has a significant practice implications for investors that they should be mindful of high information asymmetry in politically connected firms, particularly government-linked compans.
For details : https://doi.org/10.1108/jaar-05-2020-0084
