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Cultural Proximity and the Processing of Financial Information

43 Pages Posted: 28 Feb 2013 Last revised: 1 Sep 2016

Qianqian Du

Hong Kong Polytechnic University

Frank Yu

China Europe International Business School

Xiaoyun Yu

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

Date Written: July 15, 2016

Abstract

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

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

Qianqian Du

Hong Kong Polytechnic University ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

Fang Yu

China Europe International Business School ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Xiaoyun Yu (Contact Author)

Indiana University - Kelley School of Business - 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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