Does Adoption of K-IFRS Increase Upward Bias in Analysts’ Earnings Forecasts?
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This research examines the impact of Korean International Financial Reporting Standards (K-IFRS) adoption on analysts’ estimates. The empirical analysis demonstrates that estimate dispersion and the Barron-Kim-Lim-Stevens (BKLS) consensus increase significantly post-K-IFRS adoption, indicating analyst estimate errors are likely homogeneous rather than individual analysts’ mistakes or errors. Further, earnings forecast accuracy significantly declines with optimism bias, and bias magnitude increases for large companies (listed on the KOSPI or chaebols) compared with small companies (listed on the KOSDAQ or non-chaebols). The results indicate analysts are strongly motivated to develop good relationships with management by providing more optimistic estimates when new accounting standards reduce their understanding of financial statements. Optimism also increases if firms are more complicated and analysts need more information about overseas operations and diversified businesses. Our research contributes to better understanding analysts’ reactions to new accounting standards by separating the process that forms analysts’ optimism into two steps.
Abstract
This research examines the impact of Korean International Financial Reporting Standards (K-IFRS) adoption on analysts’ estimates. The empirical analysis demonstrates that estimate dispersion and the Barron-Kim-Lim-Stevens (BKLS) consensus increase significantly post-K-IFRS adoption, indicating analyst estimate errors are likely homogeneous rather than individual analysts’ mistakes or errors. Further, earnings forecast accuracy significantly declines with optimism bias, and bias magnitude increases for large companies (listed on the KOSPI or chaebols) compared with small companies (listed on the KOSDAQ or non-chaebols). The results indicate analysts are strongly motivated to develop good relationships with management by providing more optimistic estimates when new accounting standards reduce their understanding of financial statements. Optimism also increases if firms are more complicated and analysts need more information about overseas operations and diversified businesses. Our research contributes to better understanding analysts’ reactions to new accounting standards by separating the process that forms analysts’ optimism into two steps.
참고문헌 (32)
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