Cultural Proximity and the Processing of Financial Information
Hong Kong Polytechnic University
China Europe International Business School
Indiana University - Kelley School of Business - Department of Finance; China Academy of Financial Research (CAFR)
July 15, 2016
Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
This paper examines how culture affects information asymmetry in financial markets. We extract firms traded in the U.S. but headquartered in regions sharing Chinese culture (“Chinese firms”), and manually identify a group of U.S. analysts of Chinese ethnic origin (“Chinese analysts”). We find that Chinese analysts issue more accurate forecasts on Chinese firms than non-Chinese analysts. The effect is stronger among firms with less transparent information environments. Further evidence suggests that cultural proximity can go beyond language commonality and analysts’ pre-existing channels for information. Market reaction is stronger when Chinese analysts issue favorable forecast revisions or upgrades about Chinese firms.
Number of Pages in PDF File: 43
Keywords: Culture, Forecast Accuracy, Information Asymmetry, Demographic Economics, Financial Analysts
JEL Classification: G14; G24; F65; J15; J24
Date posted: February 28, 2013 ; Last revised: September 1, 2016
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