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The impact of economic freedom on financial analysts' earnings forecast: Evidence from the Asia-Pacific region

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  • Hou, Tony Chieh-Tse
  • Gao, Simon

Abstract

This study investigates the impact of economic freedom (EcF) on analysts’ earnings forecast (AEF) accuracy. EcF is measured from five aspects: Government, Protection, Money, Trade, and Regulation. With the sample of 7,014 firms from 12 economies in the Asia-Pacific region over the 18-year period, this study finds an optimistic bias in AEFs. The optimistic bias is stronger for large firms, value firms, stock with high analyst coverage, and low dispersion in AEFs. Also, the optimistic bias is stronger from analysts in economies with less EcF than in more freedom ones. Analysts are making more accurate earnings forecasts for firms in economies with more EcF. In addition, the study finds the optimism bias reduced the earnings forecast accuracy. These findings may suggest that an increase of EcF would lead to more transparent financial statements, which further reduces the analysts’ forecast bias.

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  • Hou, Tony Chieh-Tse & Gao, Simon, 2021. "The impact of economic freedom on financial analysts' earnings forecast: Evidence from the Asia-Pacific region," Finance Research Letters, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321000908
    DOI: 10.1016/j.frl.2021.102009
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    Cited by:

    1. Liu, Xingyu & Kok Loang, Ooi, 2023. "Analysts’ forecast optimism and cash holding: Evidence from China," Finance Research Letters, Elsevier, vol. 57(C).
    2. Alfonsina Iona & Andrea Calef & Ifigenia Georgiou, 2023. "Credit Market Freedom and Corporate Decisions," Mathematics, MDPI, vol. 11(7), pages 1-13, March.
    3. Yan, Min & Gong, Xinshu, 2024. "Impact of green credit on green finance and corporate emissions reduction," Finance Research Letters, Elsevier, vol. 60(C).
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    5. Hoover, Gary A. & Smimou, K., 2023. "Socially conscious investment funds and home country institutions," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 395-417.

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    More about this item

    Keywords

    Asia-Pacific economies; Earnings forecast; Economic freedom; Forecast bias;
    All these keywords.

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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