43 Pages Posted: 28 Feb 2013 Last revised: 1 Sep 2016
Date Written: July 15, 2016
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.
Keywords: Culture, Forecast Accuracy, Information Asymmetry, Demographic Economics, Financial Analysts
JEL Classification: G14; G24; F65; J15; J24
Suggested Citation: Suggested Citation
Du, Qianqian and Yu, Frank and Yu, Xiaoyun, Cultural Proximity and the Processing of Financial Information (July 15, 2016). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2225722 or http://dx.doi.org/10.2139/ssrn.2225722
By Qiang Cheng