An Empirical Analysis of Analysts’ Capital Expenditure Forecasts: Evidence from Corporate Investment Efficiency

Posted: 31 Mar 2020

See all articles by Jin Kyung Choi

Jin Kyung Choi

University of Maryland - Robert H. Smith School of Business

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business

Musa Subasi

University of Maryland-College Park - Robert H. Smith School of Business

Yue Zheng

Hong Kong University of Science & Technology (HKUST)

Multiple version iconThere are 2 versions of this paper

Date Written: February 25, 2020

Abstract

We examine whether the information conveyed in a relatively new analyst research output — capital expenditure (capex) forecasts — affects corporate investment efficiency. We find that firms with analyst capex forecasts exhibit higher investment efficiency. This effect is stronger when the forecasts are issued by analysts with higher ability or greater industry knowledge. Moreover, the effect of capex forecasts on investment efficiency varies with the signals they convey about future growth opportunities — positive-growth signals are more effective in reducing underinvestment, while negative-growth signals are more effective in reducing overinvestment. Cross-sectional tests suggest that these effects operate at least in part through both a financing channel and a monitoring channel. Taken together, our results suggest that analysts’ capex forecasts convey useful information about firms’ growth opportunities to managers and investors, which can facilitate efficient investment.

Keywords: Analyst capital expenditure forecasts, capital expenditures, corporate investment efficiency, growth opportunities, real effects, information asymmetry, agency problems

Suggested Citation

Choi, Jin Kyung and Hann, Rebecca N. and Subasi, Musa and Zheng, Yue, An Empirical Analysis of Analysts’ Capital Expenditure Forecasts: Evidence from Corporate Investment Efficiency (February 25, 2020). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3551448

Jin Kyung Choi

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Rebecca N. Hann (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Musa Subasi

University of Maryland-College Park - Robert H. Smith School of Business ( email )

University of Maryland-College Park
4332N Van Munching Hall
College Park, MD 20742
United States
301-314-1055 (Phone)

Yue Zheng

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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