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Does Information Uncertainty Affect Investor Response to Analysts’ Forecast Revisions? An Investigation of Accounting Restatements
Ran Ron Barniv,
Kent State University
Jian Cao, Florida Atlantic University
ABSTRACT. We examine the effect of information uncertainty on investor response to individual analysts’ forecast revisions conditional on forecast accuracy. Our study exploits a setting in which investors face increased uncertainty when firms announce accounting restatements. We show that, in this type of information environment, investors tend to rely more on the information that analyst characteristics convey about forecast accuracy than in the non-restatement environment. Next, we find that investors’ reliance on the information that analyst characteristics convey about forecast accuracy varies with the level of restatement intensity and the length of reaction window. Finally, for restating firms, we present a strong relation between forecast innovation in forecast revisions and stock price reaction. The findings are consistent with uncertainty in firms’ information environment stimulating investor demand for analyst research.
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