Product Market Competition and Analyst Forecasting Activity: International Evidence

Posted: 14 Dec 2014 Last revised: 15 Jun 2015

See all articles by In-Mu Haw

In-Mu Haw

Texas Christian University - M.J. Neeley School of Business

Bingbing Hu

Hong Kong Baptist University (HKBU)

Jay Junghun Lee

University of Massachusetts Boston

Date Written: February 27, 2015

Abstract

In this study, we investigate how product market competition affects the extent of analyst following and the properties of analyst forecasts. Using a broad sample of firms from 37 countries over the 1990 to 2008 period, we find that firms that operate in more concentrated industries and with stronger pricing power are associated with greater analyst following, higher forecast accuracy, and lower forecast dispersion. Moreover, the effect of product market power on analyst following and forecast properties is more pronounced in countries with less effective competition laws and higher entry costs. These findings suggest that high industry concentration and a dominant market position enhance the earnings predictability of firms and lower their information uncertainty, and that country-level institutions that promote competition effectively constrain the power in product markets.

Keywords: Product market competition, analyst following, forecast accuracy, forecast dispersion, competition laws

JEL Classification: F30, G15, M41

Suggested Citation

Haw, In-Mu and Hu, Bingbing and Lee, Jay Junghun, Product Market Competition and Analyst Forecasting Activity: International Evidence (February 27, 2015). Journal of Banking and Finance, Vol. 56, 2015, 2015 Canadian Academic Accounting Association (CAAA) Annual Conference, Available at SSRN: https://ssrn.com/abstract=2537627

In-Mu Haw

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States
817-921-7563 (Phone)
817-921-7227 (Fax)

Bingbing Hu

Hong Kong Baptist University (HKBU) ( email )

Department of Economics
Kowloon, Hong Kong
Hong Kong

Jay Junghun Lee (Contact Author)

University of Massachusetts Boston ( email )

College of Management
100 Morrissey Blvd.
Boston, MA 02125
United States
(617)287-3181 (Phone)

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