Disclosed Analyst Corporate Site Visits: Audit Adjustments and the Quality of Financial Statements and Analyst Forecasts

In 2012, China’s Shenzhen Stock Exchange (SZSE) mandated that its listed firms fully reveal the content of any corporate site visits on SZSE’s public platform within two trading days after the visits. Shanghai Stock Exchange, China’s other stock exchange, does not impose the stringent disclosure requirement. Using DiD regressions, we find robust evidence that the regulation improves the quality of auditing, financial statements, and analyst forecasts. First, after the full disclosure regulation, audit adjustments are significantly greater for a firm with corporate site visits. The disclosure also raises audit adjustments for firms in the same industry audited by the affected auditor or her peer auditors in the same audit company. Second, these affected firms, conditioned on having audit adjustments, issue higher-quality financial reports than other firms: they have less discretionary accruals and a lower likelihood of issuing restatement. These firms also have less dispersed analyst forecast errors with a lower average. Overall, the evidence supports the notion that full disclosure of site visits via a public digital platform improves the quality of financial reporting by improving auditing services and, thus, improves earnings forecasts.