Abstract

http://ssrn.com/abstract=2225722
 


 



Cultural Proximity and the Processing of Financial Information


Qianqian Du


China Academy of Financial Research (CAFR); Shanghai Advanced Institute of Finance (SAIF), Shanghai Jiao Tong University

Frank Yu


China Europe International Business School

Xiaoyun Yu


Indiana University - Department of Finance; China Academy of Financial Research (CAFR)

April 10, 2014


Abstract:     
This paper examines to what extent culture affects information asymmetry in the financial markets. To concentrate on cultural proximity rather than geographic proximity, we extract a sample of firms publicly 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 about earnings of Chinese firms than non-Chinese analysts. The rise in forecast precision is more pronounced among first-generation Chinese immigrants. Further evidence suggests that culture proximity can go beyond language commonality and analysts’ pre-existing channels for information, and that the effect of culture cannot easily be transmitted. Market reaction is stronger when Chinese analysts issue favorable forecast revisions or upgrades about Chinese firms. Our results indicate that cultural proximity mitigates information asymmetry that adversely affects foreign firms, especially those from emerging markets, and shed light on culture as an important component of human capital.

Number of Pages in PDF File: 58

Keywords: Culture, Information Asymmetry, Demographic Economics, Financial Analysts

JEL Classification: G14, G24, F65

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Date posted: February 28, 2013 ; Last revised: April 11, 2014

Suggested Citation

Du, Qianqian and Yu, Frank and Yu, Xiaoyun, Cultural Proximity and the Processing of Financial Information (April 10, 2014). Available at SSRN: http://ssrn.com/abstract=2225722 or http://dx.doi.org/10.2139/ssrn.2225722

Contact Information

Qianqian Du
China Academy of Financial Research (CAFR)
1954 Huashan Road
Shanghai P.R.China, 200030
China

Shanghai Advanced Institute of Finance (SAIF), Shanghai Jiao Tong University ( email )
KoGuan Law School
Shanghai 200030, Shanghai 200052
China
Fang Yu
China Europe International Business School ( email )
Shanghai 201206
China
Xiaoyun Yu (Contact Author)
Indiana University - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3521 (Phone)
812-855-5875 (Fax)
China Academy of Financial Research (CAFR)
1954 Huashan Road
Shanghai P.R.China, 200030
China

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