Performance commitments and the properties of analyst earnings forecasts: Evidence from Chinese reverse merger firms

Yu Liu, Lingxuan Yang and Lu Xiong

International Review of Financial Analysis, 2023, vol. 89, issue C

Abstract: We investigate whether the performance commitments in Chinese reverse merger (RM) transactions affect the properties of analyst earnings forecasts. All RM firms in China are required to make performance commitments for a limited number of years after being publicly listed. As performance commitment is an important piece of public information, it can influence analysts' understanding of firms and their efforts to forecast earnings. Using manually assembled information on RM transactions, we find that, in comparison to the control firms, RM firms exhibit an increase in analyst forecast error and dispersion after the end of performance commitment. This effect is more pronounced in firms with lower levels of information transparency. We also document that the public information contents of analyst forecasts decrease and forecast revisions increase in the post-commitment period, while the private information content of analyst forecasts and the number of their firm visits remain unchanged. Overall, our findings suggest that analysts rely greatly on public information; they have important implications for academics and policymakers in understanding how performance commitments in RM transactions affect the market information environment.

Keywords: Performance commitment; Analyst earnings forecast; Reverse merger; Information (search for similar items in EconPapers)
JEL-codes: G34 G38 M41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:89:y:2023:i:c:s1057521923002910

DOI: 10.1016/j.irfa.2023.102775

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