Analyst forecast accuracy and corporate financial performance

This study investigates the relationship between analyst forecast accuracy and corporate financial performance using panel data from 3234 listed firms in China spanning 2008 to 2023. Employing a two-way fixed effects model with firm clustered standard errors, we find that higher analyst forecast accuracy, operationalized as lower relative forecast error, is significantly associated with improved firm profitability. The analysis reveals two critical transmission mechanisms through which this effect operates: information asymmetry and business risk. Empirical tests confirm both pathways, with information asymmetry emerging as the more substantial mediating channel. The findings remain robust across multiple specifications, including alternative variable constructions and estimation methods. This research contributes to the literature by demonstrating how external information quality translates into tangible firm level outcomes, particularly in emerging market contexts where information opacity poses persistent challenges. Grounded in signaling theory, agency theory, and information asymmetry frameworks, the study shows that accurate analyst forecasts serve not merely as capital market signals but as mechanisms that materially influence corporate outcomes. The results carry important implications for firms seeking to improve disclosure quality, for investors incorporating forecast precision into valuation models, and for policymakers aiming to strengthen information intermediation infrastructure in developing capital markets. By illuminating the pathways connecting analyst forecast precision to firm performance, this work advances understanding of how information intermediaries create value beyond their direct market pricing effects.