Learn from Peers? The Impact of Peer Firms’ Analyst Earnings Forecasts on a Focal Firm's Corporate Investment Efficiency

Abstract

We explore whether a firm can learn from information on peers produced by analysts. Based on a sample of Chinese firms, we document that analyst earnings forecast accuracy (dispersion or optimism) of peer firms is positively (negatively) associated with the focal firm’s investment efficiency. The effect is more salient when the focal firm operates in a competitive industry, when the focal firm has high information asymmetry, or when peers produce low-quality annual reports. Overall, our findings provide new insights on learning from peer information produced by a third party and show that analyst earnings forecasts have spillover effects in the product market.

Keywords: peers' analyst earnings forecasts, learning effect, information asymmetry, investment efficiency