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

Author

Listed:
  • Guanming He

    (University of Durham)

  • Yun Sun

    (University of London)

  • April Zhichao Li

    (University of Exeter Business School)

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.

Suggested Citation

  • Guanming He & Yun Sun & April Zhichao Li, 2024. "Does analysts’ industrial concentration affect the quality of their forecasts?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 38(1), pages 37-91, March.
    • Handle: RePEc:kap:fmktpm:v:38:y:2024:i:1:d:10.1007_s11408-023-00435-0
    DOI: 10.1007/s11408-023-00435-0
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    More about this item

    Keywords

    Industry-specific information; Industrial concentration; Forecast accuracy; Forecast informativeness; Forecast timeliness;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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