Language barriers, corporate site visit, and analyst forecast accuracy

Abstract

This study examines the impact of language barriers on financial analysts’ decisions to perform corporate site visits and the extent to which corporate site visits help analysts overcome language barriers to improve earnings forecast accuracy. Using a sample of analysts’ visits to listed firms on the Shenzhen Stock Exchange, we find that analysts are more likely to visit firms headquartered in areas where local dialects are largely different from Standard Mandarin. Moreover, corporate site visits increase analysts’ forecast accuracy more for those firms. Altogether, the findings suggest that language barriers create difficulties for analysts in obtaining information via verbal communication, and corporate site visits help analysts reduce the communication noise.