Financial Analysts’ Long-Term Growth Forecasts and Market Efficiency with Respect to Firms’ Innovative Efficiency

74 Pages Posted: 5 Oct 2016 Last revised: 2 Dec 2017

See all articles by Jeff Zeyun Chen

Jeff Zeyun Chen

Texas Christian University

Philip B. Shane

College of William & Mary; Monash University; Monash University - Department of Accounting

Liu Yang

University of Miami

Joseph Zhang

University of Memphis

Date Written: November 16, 2017

Abstract

This paper investigates the role of financial analysts’ long-term growth (LTG) forecasts in stock market efficiency with respect to information about firms’ innovative efficiency (IE). Hirshleifer, Hsu, and Li (2013) attribute evidence of market inefficiency with respect to IE information to investor limited attention constraints. We predict and find that innovatively efficient firms attract analyst publication of long-term growth (LTG) forecasts. Further evidence suggests that these forecasts proxy for analyst attention to long-term prospects, thus mitigating investor inattention and market underreaction to IE information. Our results also indicate that analysts publishing LTG forecasts bring more private information to bear on firms whose prospects depend on IE. Furthermore, we find that forecasted LTG rates increase with firms’ IE. Finally, analysts’ LTG forecasting experience and expertise in analyzing the implications of technological innovation further attenuate analyst and market inefficiency with respect to IE information. When attracted to research-intensive firms, analyst publication of LTG forecasts apparently corresponds to a long-term perspective that mitigates investor inattention and market underreaction to IE information.

Suggested Citation

Chen, Jeff Zeyun and Shane, Philip B. and Yang, Liu and Zhang, Joseph, Financial Analysts’ Long-Term Growth Forecasts and Market Efficiency with Respect to Firms’ Innovative Efficiency (November 16, 2017). Available at SSRN: https://ssrn.com/abstract=2847334 or http://dx.doi.org/10.2139/ssrn.2847334

Jeff Zeyun Chen

Texas Christian University ( email )

2900 Lubbock Ave
Fort Worth, TX 76109
United States

Philip B. Shane (Contact Author)

College of William & Mary ( email )

P.O. Box 8795
Williamsburg, VA 23185
United States

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Monash University - Department of Accounting ( email )

H3.43, Building H, Level 3
Monash University Caulfiled
Melbourne, VIC 3145
Australia

Liu Yang

University of Miami ( email )

Coral Gables, FL 33124
United States

Joseph Zhang

University of Memphis ( email )

Memphis, TN 38152-3370
United States

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