Seeing is Believing: Do Analysts Benefit from Site Visits?

Abstract

This study examines the impact of site visits on analysts’ forecast accuracy based on a sample of analysts’ corporate site visits to Chinese listed firms during 2009-2012. Using a difference-in-differences approach, we find that analysts who conduct site visits (“visiting analysts”) have a greater increase in forecast accuracy than non-visiting analysts. Consistent with the notion that site visits facilitate analysts’ information acquisition through observing firms’ operations, we find that the results are stronger for manufacturing firms, for firms with more tangible assets, and for firms with more concentrated business lines. In addition, we find that the effect of a site visit is greater when the site visit is an analyst-only visit, when the current site visit is preceded by fewer site visits, and when visiting analysts are located far from the visited firms. Moreover, visiting analysts’ forecast revisions are accompanied by a higher market response. Furthermore, we find that site visits partially mitigate non-local analysts’ information disadvantage. Lastly, our determinant analysis shows that the likelihood of analysts’ site visits increases with the expected benefits and decreases with the costs adherent to conducting site visits. Collectively, these results indicate that corporate site visits are an important information acquisition activity for analysts.