Abstract
The aim of this paper is to compare the information and resource endowments possessed by different analyst types, classified by both location and employment within the context of seven emerging Asian markets. Our results show that local analysts are more accurate than expatriate and global analysts when we consider all earnings forecasts. However, when we control for the segregated herding behaviour of analysts, we find that herding local forecasts are one of the least accurate compared to other herding forecasts. By contrast, bold local (that is, non‐herding local) forecasts are more accurate than all other bold forecasts. This suggests that the information endowment of bold local analysts is superior to the information and resource endowments of bold expatriate analysts. We show that the superior accuracy of bold local forecasts does not stem from business group affiliations, investment banking relationships, demand for local analysts’ services or the specialisation of analysts vis‐à‐vis countries or sectors. We consistently find that bold local analysts are better at assessing the earnings of the firm they forecast. Our results show that the prior documented advantage of local analysts in terms of forecasting accuracy is driven by the bold local analysts, with herding locals diluting this effect. To the best of our knowledge, this is the first study to explore the segregated herding behaviour of local, expatriate and global analysts, and its impact on relative forecast accuracy across analyst types.
Highlights
Considerable debate exists regarding the relative quality of earnings forecasts produced by local and foreign analysts; see, e.g., Conroy et al (1997); Bacmann and Bolliger (2003); Orpurt (2004); Bolliger (2004); Bae et al (2008a) and Comiran and Siriviriyakul (2019).1 The majority of studies in the field argue that resident analysts are more accurate than non-resident analysts
We argue that bold forecasts reflect more accurately the information and resource endowments possessed by different analyst types
The results reported in columns (2) to (5) of Table 3 show that local and global analysts are more likely to herd compared to the expatriate analysts and the results are qualitatively similar across the four measures of herding
Summary
Considerable debate exists regarding the relative quality of earnings forecasts produced by local and foreign analysts; see, e.g., Conroy et al (1997); Bacmann and Bolliger (2003); Orpurt (2004); Bolliger (2004); Bae et al (2008a) and Comiran and Siriviriyakul (2019). The majority of studies in the field argue that resident analysts (those located in the same country as the local firm) are more accurate than non-resident analysts. The majority of studies in the field argue that resident analysts (those located in the same country as the local firm) are more accurate than non-resident analysts This is primarily driven by their local advantage in terms of their understanding of local customs, cultures, language and the relationship with local firms (the information endowment factor).. The failure to account for this behaviour prevents the researcher from testing the true forecasting abilities of analysts and accurately comparing the information versus resource endowment factors. To address this concern, we control for the segregated herding behaviour of analysts and focus on bold (nonherding) forecasts as they are more likely to reflect the true ability of analysts to collect and process extant information
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