Abstract
Regulatory penalty has a spillover effect through director networks. This study examines the spillover effect of information disclosure violation penalties on the bias of management earnings forecast and analysts' earnings forecast for interlocked director firms. Our results document that the penalty significantly increases the bias of the interlocked director firm's management earnings forecast and significantly decreases the accuracy of analysts' earnings forecasts. Moreover, the higher the influence degree of penalties, that is the more the firms sharing interlocked directors have been punished, the greater the impact of penalties on focus firm. The bias of management earnings forecast has a significant partial mediation. These results reveal potential financial risks in the capital market caused by the board network, indicating a need for the China Securities Regulatory Commission (CSRC) to improve the management earnings forecast disclosure policies and strengthening financial supervision.
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