Abstract
Abstract This paper investigates the joint impact of public and private information on analysts’ forecasting behaviour. Information disclosure determines the quality and quantity of public information. The geographical distance between listed firms’ headquarters and brokerage houses determines the difficulty and costs of analysts obtaining private information, which affect the quality and quantity of private information. Firstly, this paper finds results consistent with prior literature that the higher the disclosure level of the firm and the shorter the geographical distance between firms and brokerage headquarters, the more frequently analysts make earnings forecasts and the lower the forecast errors. Furthermore, this paper examines the joint effects of information disclosure and geographical distance on analysts’ forecasts and finds that information disclosure quality imposes a stronger impact on analysts’ forecast frequency and forecast error than distance. Moreover, the effect of geographical distance on the frequency and errors of analysts’ forecasts is manifested only in the case of higher information disclosure quality. These results imply that both public and private information affect analysts’ forecasts but that their effects are asymmetric. Public information has a significantly stronger impact on analysts’ forecasts than private information, and the effect of private information depends on a better public information environment. This paper has significant value to public policy regulators, market participants, stakeholders, and academics in China and can help to increase their understanding of the impact of public and private information on analysts’ forecasts.
Highlights
As its securities market develops, China’s Ministry of Finance continues to deepen its fiscal and tax reforms
Previous literature has explored the separate effects of public information (Baldwin, 1984; Hodder et al, 2008; Langberg and Sivaramakrishnan, 2008; Libby et al, 2006) and private information (Chen and Jiang, 2006; Green et al, 2014; Mayew et al, 2013) on analysts’ forecasting behaviour
Empirical results show that the separate effect of public and private information is consistent with the prediction and prior findings
Summary
As its securities market develops, China’s Ministry of Finance continues to deepen its fiscal and tax reforms. Using the information disclosure index to measure the quantity and quality of public information, and geographical distance to measure the quantity and quality of private information, this paper examines the joint impact of such information on the analysts’ forecasting behaviour and finds that higher levels of information disclosure and shorter geographical distance lead to lower analysts’ forecast errors and more frequent forecast reports These findings are consistent with the previous literature. With the continuing reform of China’s securities market and the gradual improvement of the public information environment, the impact of the combined effect of public and private information on financial analysts’ forecasts has become an important issue of concern to all capital market participants. Our research findings will help investors better understand and predict the behaviour of financial analysts and enable them to make rational decisions
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