Effect of firm complexity on forecasting price efficiency

Adnan Ashraf, Baolei Qi, Muhammad Saleem and Xia Zhang

Finance Research Letters, 2024, vol. 62, issue PA

Abstract: Utilizing a sample of US firms spanning 1996–2021, our study presents robust evidence indicating that the stock prices of complex firms demonstrate improved forecasting price efficiency. Our analyses further uncover decreased accruals and frequent management forecasts as potential mechanisms through which complex firms enhance forecasting price efficiency. Additionally, we observe that certain preexisting conditions, such as firms’ exposure to litigation and environmental penalties, and the presence of Big 4 auditors, increase the likelihood of complex firms improving the information content of their stock prices. Overall, our findings strongly suggest that complex firms increase their efforts to ensure informative stocks.

Keywords: Firm complexity; Forecasting price efficiency; Information environment (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:62:y:2024:i:pa:s1544612324000758

DOI: 10.1016/j.frl.2024.105045

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