Effects of FinTech and Crowdsourced Forecasting on Firms: Evidence from Estimize
47 Pages Posted: 21 Apr 2020
Date Written: April 10, 2020
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: Suggested Citation