Market information traveling on high-speed rails: The case of analyst forecasts

Abstract

This study examines the causal effects of high-speed rail (HSR) on the forecast accuracy of sell-side analysts. Although transportation infrastructure may reshape business activities, comparatively little attention has been paid to the impact of traveling cost on the information acquisition of analysts. In this study, we exploit a quasi-experiment of variation in China's HSR and use difference-in-differences estimation to show the following. (1) HSR substantially increase forecast accuracy for firms located in the cities connected to HSR. (2) To address endogeneity, we introduce a placebo test and instrumental variable based on the hypothetical least-cost HSR networks, and the results are highly consistent. (3) A plausible mechanism is that HSR increase the probability of analysts' visit of listed firms rather than via increased analyst coverage and an improved firm information environment. (4) Our findings are more pronounced for firms with high accrual quality, firms audited by a Big 4 auditor, and firms located nearer information centers. Overall, we provide the first empirical evaluation of the economic consequences of HSR in terms of analyst forecast and market information transmission.