Retail investor attention and analyst earnings forecasts: Evidence from China

Abstract

This article examines the impact of retail investor attention on analyst earnings forecast accuracy. Using a dataset of 21,238 firm-year observations from the Chinese A-share listed firms between 2011 and 2021, we find that future analyst forecast error and dispersion are higher for firms with higher search volumes on the internet, suggesting that retail investor attention has a significant negative impact on analyst earnings forecast accuracy. Further analysis shows that higher retail investor attention could impair the stock price informativeness and induce a greater level of earnings management of the underlying firms, supporting that the informational feedback effect of stock prices and opportunistic behaviors of firm managers are possible mechanisms through which retail investor attention deteriorates analyst earnings forecast accuracy. Moreover, our results in heterogeneity analysis reveal that the negative relationship between retail investor attention and analyst earnings forecast accuracy is more pronounced for non-Big4 audit firms, non-shortable firms, and firms that are not in the Mainland-Hong Kong stock connect program.