Analyst Coverage,Forecasting Bias,and Corporate Innovation:Evidence from China

Due to information asymmetry and strategic innovation,firms often encounter challenges related to insufficient driving forces and low-quality innovation outcomes.Analysts always act as information intermediaries who help foster the advancement of corporate innovation activities and the conversion of innovation output.This study examines the impact of analyst coverage and forecasting bias on corporate innovation,employing data from China A-shared listed firms spanning the period 2007 to 2019.We measure corporate innovation from two perspectives:Input and output.Specifically,we use the ratio of research and development(R&D)expenditure to sales as a proxy for the innovation input and the number of patent citations excluding self-citations to measure innovation output.We find that analyst coverage promotes corporate innovation,which is consistent with the“bright”side of analyst coverage.However,the positive effect of analyst coverage hinges on effectively transmitting and disclosing accurate information to investors in the capital market.Based on this,analysts'forecasting bias includes forecasting dispersion and optimism bias.We find evidence that an increase in analysts'forecast dispersion leads to a decrease in corporate innovation quality.Moreover,this paper presents a novel approach by employing the regression discontinuity method to examine the effect of analyst optimistic bias on firm innovation.The empirical findings reveal that overly optimistic forecasts by analysts exacerbate innovation quality.These analyses enrich the research on analyst coverage and corporate innovation,providing an empirical basis for improving the capital market with the help of analysts.

Supplier concentration and analyst forecast bias

This study examines the relationship between analyst forecast dispersion or accuracy and supplier concentration of listed firms in China from 2008 to 2019.Our findings suggest that higher supplier concentration is associated with lower analyst forecast dispersion,which can be attributed to the increased attention from analysts.Moreover,this effect is more pronounced when firms have less bargaining power and higher institutional ownership,indicating a greater reliance on the supply chain.Our study highlights the importance of disclosing supply chain information,which provides insights beyond those of traditional financial information.