Does analysts’ industrial concentration affect the quality of their forecasts?

Guanming He, Yun Sun () and April Zhichao Li ()
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Yun Sun: University of London
April Zhichao Li: University of Exeter Business School

Financial Markets and Portfolio Management, 2024, vol. 38, issue 1, No 2, 37-91

Abstract: Abstract We examine the association between financial analysts’ industrial concentration and the quality of their earnings forecasts. We find that analysts’ forecast quality, measured by forecast accuracy, forecast informativeness, and forecast timeliness, is positively associated with analysts’ industrial concentration on firm coverage, suggesting that allocation of effort and resources to the concentrated industries helps promote the quality of earnings forecasts. We also find that the positive relation of analysts’ industrial concentration with forecast accuracy and informativeness (forecast timeliness) is more (less) pronounced for firms faced with fiercer industrial product market competition, higher firm-specific risk, and/or higher information opacity. Overall, our results highlight the importance of analysts’ industrial concentration in contributing to the quality of their earnings forecasts.

Keywords: Industry-specific information; Industrial concentration; Forecast accuracy; Forecast informativeness; Forecast timeliness (search for similar items in EconPapers)
JEL-codes: G11 G14 G24 M41 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11408-023-00435-0

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