Regulation Fair Disclosure And Analysts’ Earning Forecast Attribute

On August9,2006, Shenzhen Stock Exchange issued Regulation Fair Disclosure (hereafterReg), which prohibits selective disclosure of material nonpublic information to certain financialanalysts, institutional investors and other prior to making it available to the general public.Financial analysts are an important group of information intermediaries in the capital markets.Their reports, including both earnings forecasts and stock recommendations, are widelytransmitted and have a significant impact on stock prices. The study empirically analyzes Reg’simpact on the accuracy and dispersion of sell-side analysts’ earnings forecasts using fixed-effectspanel regressions that allow us to abstract from forecast seasonality and from analyst andcompany characteristics. Selecting a large number of yearly forecasts made over a nearly7-yearperiod surrounding FD’s adoption, I uncover two main sets of findings. First, individual forecastsbecome less accurate post-FD, particularly for early forecasts and for companies with poorinformation disclosure. Second, forecast dispersion increases post-FD. These results, which arequite robust to alternative empirical methodologies, suggest that there has been a reduction inboth selective guidance and forecast quality post-FD. The amount of private informationavailable to analysts is less and the uncertainty of information environment is increased.