National Culture and Analysts’ Forecasting Behavior

60 Pages Posted: 19 Nov 2020 Last revised: 17 Aug 2022

See all articles by Ying Cao

Ying Cao

The Chinese University of Hong Kong (CUHK) - School of Accountancy

Rubin Hao

University of Macau

Yong George Yang

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration

Date Written: August 17, 2022

Abstract

We examine how the culture of origin of sell-side financial analysts in the U.S. influences their forecasting behavior. We find that analysts from individualistic cultures are more likely to issue bold earnings forecasts and stock recommendations than analysts from collectivist cultures. Individualistic (collectivist) analysts’ tendency to overweight (underweight) their private information at least partly explains the results. The effect of culture decreases with the analysts’ professional skills and their exposure to the U.S. culture, but increases with task difficulty. For market consequences, short-window market reactions are stronger to bold reports by collectivist analysts than to those by individualistic analysts, consistent with the analysts’ differential weighting of their private information. On average, however, a higher level of analyst individualism is associated with lower stock price synchronicity of the firm covered, indicating that more firm-specific information is impounded in the stock price. Our study extends prior research on the effect of national culture in the capital market by demonstrating how individualism, a central element of culture, affects analysts’ information processing and the value of their work.

Keywords: herding, analysts’ forecasting behavior, national culture, individualism, collectivism

JEL Classification: M41,G24

Suggested Citation

Cao, Ying and Hao, Rubin and Yang, Yong George, National Culture and Analysts’ Forecasting Behavior (August 17, 2022). Available at SSRN: https://ssrn.com/abstract=3713715 or http://dx.doi.org/10.2139/ssrn.3713715

Ying Cao (Contact Author)

The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )

Shatin, N.T.
Hong Kong

Rubin Hao

University of Macau ( email )

P.O. Box 3001
Macau

Yong George Yang

The Chinese University of Hong Kong (CUHK) - Faculty of Business Administration ( email )

Shatin, N.T.
Hong Kong

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