Do Local Analysts Know More? A Cross-Country Study of the Performance of Local Analysts and Foreign Analysts

56 Pages Posted: 13 Oct 2005

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Hongping Tan

McGill University

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

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Abstract

This paper examines whether analysts resident in a country make more precise earnings forecasts for firms in that country than analysts who are not resident in that country. Using a sample of 32 countries, we find that there is an economically and statistically significant analyst local advantage even after controlling for firm and analyst characteristics. The importance of the local advantage is inversely related to the quality of the information provided by firms. In particular, the local advantage is high in countries where earnings are smoothed more, less information is disclosed by firms, and firm idiosyncratic information explains a smaller fraction of stock returns. The local advantage is also negatively related to whether a firm has foreign assets, to market participation by foreign investors and by institutions, and it is positively related to holdings by insiders. There is a positive correlation between the extent to which U.S. investors underweight a country's stocks and that country's analyst local advantage.

JEL Classification: F30, G11, G14, G24, G29, M41, M43, M45, M47

Suggested Citation

Bae, Kee-Hong and Tan, Hongping and Stulz, Rene M., Do Local Analysts Know More? A Cross-Country Study of the Performance of Local Analysts and Foreign Analysts. Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=816144

Kee-Hong Bae

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Hongping Tan

McGill University ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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