Document Type
Article
Keywords
Analysts’ forecast error; earnings quality; fraud; persistence; returns
Identifier Data
http://s3.amazonaws.com/web.nacva.com/JFIA/Issues/JFIA-2019-No2-6.pdf
Publisher
National Association of Certified Valuators and Analysts
Publication Source
Journal of Forensic and Investigative Accounting
Abstract
This study evaluates how informative the earnings of fraud firms are compared to peer non-fraud firms by assessing informativeness in the context of persistence, analysts’ forecast errors, and stock returns. There are differences in how informative the earnings of fraud firms are to analysts’ forecasts and returns in the pre-fraud period, but not in the fraud period. In the post- fraud period, there is no difference in how informative fraud firms’ earnings are to analysts’ earnings forecasts. Furthermore, fraud firm’s earnings are not differentially associated with excess returns post-fraud. When earnings are decomposed into accruals and cash flows, fraud firms’ accruals are more persistent pre-fraud and less so post- fraud while cash flows are not differentially persistent conditional on fraud. The study presents insights that can help practitioners, auditors, regulators, and researchers identify fraud candidates.
