Government Audit Announcements and Analysts’ Earning Forecasts: Evidence From China

This paper uses the difference-in-difference (DID) method to test the impact of government audits on analysts’ forecast accuracy. The empirical results show that after government audit announcements, analysts’ earning forecast accuracy of listed companies controlled by audited state-owned enterprises is significantly improved, while optimistic forecast bias and stock recommendation ratings are significantly lowered. Among them, the impact of operation and management issues on analysts’ forecast accuracy is more significant, while the impact of financial and accounting issues on analysts’ stock recommendation ratings is more significant. These indicate that government audit announcements have information effect and transmits companies’ incremental information to capital market. The conclusions pass the sensitivity tests and robustness tests. This paper not only enriches the literature on the relationship between government behavior and capital market, but also provides empirical support for the impact of government regulation on capital market efficiency.