Institutional investors' corporate site visits and firm management earnings forecasts

Kaijuan Gao, Manya Wang and Renyun Zhang

Accounting and Finance, 2023, vol. 63, issue 4, 4479-4504

Abstract: Institutional investors' site visits may reduce investors' demand for information, resulting in managers' reluctance to disclose earnings forecasts and exacerbating information asymmetry in the capital market. However, institutional investors may also monitor management through site visits, which increases voluntary management earnings forecasts disclosure and thus reduces information asymmetry. Using a sample of Chinese listed firms from 2012 to 2018, we find that firm management is more likely to voluntarily disclose earnings forecasts after the institutional investors' site visits. Specifically, increasing from the 25th to the 75th percentile of institutional site visits is associated with an increase in the odds of voluntary management earnings forecasts by 24%. We use instrumental variables and Heckman two‐step method to address the endogeneity problems and report similar findings. Additional tests show that the governance effect is amplified among firms with severe type I and type II agency problems or firms with no need for refinancing and alleviating stock price synchronicity. Furthermore, we find that voluntary earnings forecasts are more accurate and more precise after site visits, which means institutional investors' site visits in fact improve the quality of management earnings forecasts. Our findings complement the institutional investors' governance effects on earnings forecasts from the perspective of information acquisition.

Date: 2023
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