Analysts’ foreign ancestral origins and firms’ information environment

Wang, Kun Tracy; Luo, Guqiang; Yu, Li

doi:10.1108/cafr-02-2022-0006

Cited by 2 publications

(2 citation statements)

References 88 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Analysts play an instrumental role in disseminating accounting information by forecasting firm performance metrics, such as forecast future earnings, cash flows and stock prices for the firms they follow (Beneish, 1991;Dai et al, 2021;Fosu et al, 2018;Graaf, 2018;Luo et al, 2022;O'brien, 1988;Wang et al, 2022;Womack, 1996). Previous research looks at the role of prior experience and firm-specific characteristics as drivers of analysts' forecast properties (i.e.…”

Section: Introductionmentioning

confidence: 99%

Analyst forecast accuracy during COVID-19: does prior epidemic experience matter?

Agarwal

Chalwati

2023

CAFR

View full text Add to dashboard Cite

PurposeThe authors examine the role of analysts’ prior experience of forecasting for firms exposed to epidemics on analysts’ forecast accuracy during the COVID-19 pandemic.Design/methodology/approachThe authors examine the impact of analysts’ prior epidemic experience on forecast accuracy by comparing the changes from the pre-COVID-19 period (calendar year 2019) to the post-COVID period extending up to March 2023 across HRE versus non-HRE analysts. The authors consider a full sample (194,980) and a sub-sample (136,836) approach to distinguish “Recent” forecasts from “All” forecasts (including revisions).FindingsThe study's findings reveal that forecast accuracy for HRE analysts is significantly higher than that for non-HRE analysts during COVID-19. Specifically, forecast errors significantly decrease by 0.6% and 0.15% for the “Recent” and “All” forecast samples, respectively. This finding suggests that analysts’ prior epidemic experience leads to an enhanced ability to assess the uncertainty around the epidemic, thereby translating to higher forecast accuracy.Research limitations/implicationsThe finding that the expertise developed through an experience of following high-risk firms in the past enhances analysts’ performance during the pandemic sheds light on a key differentiator that partially explains the systematic difference in performance across analysts. The authors also show that industry experience alone is not useful in improving forecast accuracy during a pandemic – prior experience of tracking firms during epidemics adds incremental accuracy to analysts’ forecasts during pandemics such as COVID-19.Practical implicationsThe study findings should prompt macroeconomic policymakers at the national level, such as the central banks of countries, to include past epidemic experiences as a key determinant when forecasting the economic outlook and making policy-related decisions. Moreover, practitioners and advisory firms can improve the earning prediction models by placing more weight on pandemic-adjusted forecasts made by analysts with past epidemic experience.Originality/valueThe uncertainty induced by the COVID-19 pandemic increases uncertainty in global financial markets. Under such circumstances, the importance of analysts’ role as information intermediaries gains even more importance. This raises the question of what determines analysts’ forecast accuracy during the COVID-19 pandemic. Building upon prior literature on the role of analyst experience in shaping analysts’ forecasts, the authors examine whether experience in tracking firms exposed to prior epidemics allows analysts to forecast more accurately during COVID-19. The authors find that analysts who have experience in forecasting for firms with high exposure to epidemics (H1N1, Zika, Ebola, and SARS) exhibit higher accuracy than analysts who lack such experience. Further, this effect of experience on forecast accuracy is more pronounced while forecasting for firms with higher exposure to the risk of COVID-19 and for firms with a poor ex-ante informational environment.

show abstract

Section: Introductionmentioning

confidence: 99%

Analyst forecast accuracy during COVID-19: does prior epidemic experience matter?

Agarwal

Chalwati

2023

CAFR

View full text Add to dashboard Cite

show abstract

“…Financial analysts are widely regarded as important intermediaries in the production and dissemination of firm information (Wang, Luo, & Yu, 2022). Investors generally consider analysts' earnings forecasts as crucial earnings benchmarks used in equity valuation.…”

Section: Introductionmentioning

confidence: 99%

Does the market reward meeting or beating analyst earnings forecasts? Empirical evidence from China

Luo

Wang

2022

CAFR

Self Cite

View full text Add to dashboard Cite

PurposeUsing a sample of 9,898 firm-year observations from 1,821 unique Chinese listed firms over the period from 2004 to 2019, this study aims to investigate whether the market rewards meeting or beating analyst earnings expectations (MBE).Design/methodology/approachThe authors use an event study methodology to capture market reactions to MBE.FindingsThe authors document a stock return premium for beating analyst forecasts by a wide margin. However, there is no stock return premium for firms that meet or just beat analyst forecasts, suggesting that the market is skeptical of earnings management by these firms. This market underreaction is more pronounced for firms with weak external monitoring. Further analysis shows that meeting or just beating analyst forecasts is indicative of superior future financial performance. The authors do not find firms using earnings management to meet or just beat analyst forecasts.Research limitations/implicationsThe authors provide evidence of market underreaction to meeting or just beating analyst forecasts, with the market's over-skepticism of earnings management being a plausible mechanism for this phenomenon.Practical implicationsThe findings of this study are informative to researchers, market participants and regulators concerned about the impact of analysts and earnings management and interested in detecting and constraining managers' earnings management.Originality/valueThe authors provide new insights into how the market reacts to MBE by showing that the market appears to focus on using meeting or just beating analyst forecasts as an indicator of earnings management, while it does not detect managed MBE. Meeting or just beating analyst forecasts is commonly used as a proxy for earnings management in the literature. However, the findings suggest that it is a noisy proxy for earnings management.

show abstract

Analysts’ foreign ancestral origins and firms’ information environment

Cited by 2 publications

References 88 publications

Analyst forecast accuracy during COVID-19: does prior epidemic experience matter?

Analyst forecast accuracy during COVID-19: does prior epidemic experience matter?

Does the market reward meeting or beating analyst earnings forecasts? Empirical evidence from China

Contact Info

Product

Resources

About