Is there information in financial analysts' forecasts about firms that subsequently restate their earnings?

Abstract

This study evaluates the information in financial analystsa?? earnings forecasts about firms that subsequently restate their earnings. We compare the analyst forecasts for restatement firms versus non-restatement firms before restatement announcement. We find that analysts tend to issue more optimistic forecasts for restatement firms in the period when earnings were misstated as well as in the year before the restatement announcement. It suggests that financial analysts fail to perform their gatekeeper role competently. Notwithstanding, restatement firms are found to have larger forecast dispersion than non-restatement firms in the year prior to restatement announcement, and the forecast dispersion contains price-sensitive information about the subsequent earnings restatement.