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Does foreign investor demand for information affect forecast accuracy? Evidence from the Chinese stock markets

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  • Barniv, Ran

Abstract

Prior international accounting studies have examined mainly the supply side of analyst research. Specific trading rights and financial reporting systems in China provide a unique opportunity to test both demand and supply factors of analyst information. For shares traded only by less-informed foreign investors, the increased information demand may create incentives for analysts to exert greater efforts than for shares traded by local investors. This study provides evidence that analyst effort (proxied by analyst coverage) and expertise (proxied by consensus cross-analyst forecast variability) affect forecast accuracy more significantly for shares traded by foreign investors than for shares traded by local investors. Additionally, I find that the relation between analyst characteristics and relative forecast accuracy is stronger for shares traded by the foreign investors. The findings are consistent with analysts responding to demands for information by less-informed investors.

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  • Barniv, Ran, 2009. "Does foreign investor demand for information affect forecast accuracy? Evidence from the Chinese stock markets," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 18(2), pages 101-118.
    • Handle: RePEc:eee:jiaata:v:18:y:2009:i:2:p:101-118
    DOI: 10.1016/j.intaccaudtax.2009.05.006
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    3. Eliwa, Yasser & Haslam, Jim & Abraham, Santhosh, 2021. "Earnings quality and analysts’ information environment: Evidence from the EU market," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 42(C).
    4. Elshandidy, Tamer, 2014. "Value relevance of accounting information: Evidence from an emerging market," Advances in accounting, Elsevier, vol. 30(1), pages 176-186.
    5. Bartholdy, Jan & Feng, Tiyi, 2013. "The quality of securities firms' earnings forecasts and stock recommendations: Do informational advantages, reputation and experience matter in China?," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 66-88.
    6. Dykxhoorn, Hans J. & Sinning, Kathleen E., 2010. "A review and analysis of international accounting research in JIAAT: 2002–2010," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 19(2), pages 137-153.
    7. Wang, Ying & Liu, Zisen & Wang, Xin, 2022. "The supply of analysts and earnings forecasts," International Review of Financial Analysis, Elsevier, vol. 84(C).
    8. Huang, Wei & Wright, Brian, 2015. "Analyst earnings forecast under complex corporate ownership in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 35(C), pages 69-84.
    9. Xu Cheng & Dongmin Kong & Xinwei Zheng & Qi Tang, 2022. "Do foreign investors crowd out sell‐side analysts? Evidence from China," The Financial Review, Eastern Finance Association, vol. 57(4), pages 815-834, November.

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