National Culture and Analysts’ Forecasting Behavior

65 Pages Posted: 19 Nov 2020 Last revised: 2 Feb 2021

See all articles by Ying Cao

Ying Cao

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

Rubin Hao

Beijing Normal University (BNU) - School of Economics and Business Administration

Yong George Yang

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

Date Written: October 17, 2020

Abstract

We examine whether national culture, in particular, its individualism/collectivism dimension, affects sell-side financial analysts’ forecasting behavior. We find that analysts from individualistic cultures are more likely to issue bold earnings forecasts and stock recommendations than analysts from collectivistic cultures. These results are related to individualistic (collectivistic) analysts’ inclination to over-weight (under-weight) their private information in forming forecasts. The culture’s effect is not permanent: Although slowly, it does decay over time. For market consequences, short-window market reactions are stronger to bold reports by collectivistic analysts than to those by individualistic analysts. For longer-term effects, we find that higher individualism of the covering analysts is associated with lower stock price synchronicity, indicating proportionately more firm-specific information impounded in the stock price. In net, however, we find that individualistic and collectivistic analysts appear to be equally effective in mitigating firms’ information asymmetry.

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 (October 17, 2020). 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

Beijing Normal University (BNU) - School of Economics and Business Administration ( email )

No.19 Xinwai Str
Haidian District
Beijing, 100875
China

Yong George Yang

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

Shatin, N.T.
Hong Kong

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