Analysts’ forecast optimism and cash holding: Evidence from China

Abstract

Analysts play an important role as information intermediaries. In this paper, we empirically analyze the impact of analysts' forecast optimism on firms’ cash holdings. Based on China's A-share listed companies from 2011–2021 as the research sample, we find that analyst forecast optimism significantly decreases the company's cash holdings. Meanwhile, based on a cash-cash flow sensitivity model, we show that analyst forecast optimism reduces the company's financing constraint and further makes the company's cash holdings decrease. Moreover, the larger (or older) the firm, the smaller the negative effect of analyst optimism on cash holdings.