Effects of FinTech and Crowdsourced Forecasting on Firms: Evidence from Estimize

47 Pages Posted: 21 Apr 2020

See all articles by Edward Sul

Edward Sul

George Washington University

Date Written: April 10, 2020

Abstract

This paper examines whether and how coverage from a unique crowdsourced financial estimates platform, Estimize, affects firms. Employing a difference-in-difference design comparing firms that gain coverage from Estimize with firms that do not, I find that covered firms experience decreased information asymmetry, implying that Estimize provides useful information to the market. I also provide evidence of a visibility effect, as the breadth of institutional ownership increases following initiation of Estimize coverage. In addition, firms gaining Estimize coverage become more likely to engage in real earnings management and issue downwards quarterly earnings guidance, suggesting increased pressure effects from Estimize coverage. However, I find no monitoring effects of Estimize on firms’ financial reporting and future firm performance. Lastly, I find that firm value significantly increases upon Estimize coverage, and that the driving channels are reduction of information asymmetry and increased visibility. Furthermore, the effects of Estimize coverage on firm outcomes appear to be more pronounced when a firm has zero analyst coverage. Taken together, the evidence in this paper suggests that crowdsourced forecasting affects firms through various channels, most notably through decreasing information asymmetry, increasing visibility and pressure, but that the net effect on firm value is positive.

Keywords: FinTech, crowdsourced financial forecasting, Estimize, information intermediary

JEL Classification: G11, G14, G29, G32, M41

Suggested Citation

Sul, Edward, Effects of FinTech and Crowdsourced Forecasting on Firms: Evidence from Estimize (April 10, 2020). Available at SSRN: https://ssrn.com/abstract=3573152 or http://dx.doi.org/10.2139/ssrn.3573152

Edward Sul (Contact Author)

George Washington University ( email )

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