National culture and analysts’ forecasting

Ying Cao (), Rubin Hao and Yong George Yang
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Ying Cao: Chinese University of Hong Kong
Rubin Hao: University of Macau
Yong George Yang: Chinese University of Hong Kong

Review of Accounting Studies, 2024, vol. 29, issue 2, No 5, 1147-1191

Abstract: Abstract We examine how the culture of origin of sell-side financial analysts in the United States influences their forecasting. We find that analysts from individualistic cultures are more likely to issue bold earnings forecasts and stock recommendations than analysts from collectivist cultures. Individualistic (collectivist) analysts’ tendency to overweight (underweight) their private information at least partly explains the results. The effect of culture decreases with the analysts’ professional skills and their exposure to the U.S. culture but increases with task difficulty. For market consequences, short-window market reactions are stronger to bold reports by collectivist analysts than to those by individualistic analysts, consistent with the analysts’ differential weighting of their private information. On average, however, a higher level of analyst individualism is associated with lower stock price synchronicity of the firm covered, indicating that more firm-specific information is impounded in the stock price. Our study extends research on the effect of national culture in the capital market by demonstrating how individualism, a central element of culture, affects analysts’ information processing and the value of their work.

Keywords: Herding; Analysts’ forecasting; National culture; Individualism; Collectivism (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11142-022-09752-7

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