The Impact Of Field Research On The Accuracy Of Analyst Profit Forecast

Compared to ordinary investors, security analysts have advantages over professional skills and information resources. They can provide new information to the capital market by issuing earnings forecasts, which reduces information asymmetry of the capital market and improves the efficiency of resource allocation. A lot of research shows that analysts’ earnings forecasts are accurate and value-related to some extent. But the accuracy of analysts’ earnings forecasts is affected by various factors, mainly categorized as firm-level factors and analyst-level factors. The paper mainly studies the effects of analysts’ site visits on the accuracy of analysts’ earnings forecasts, which is an effective supplement to research of analyst-level factors.Employing China security analysts’ earnings forecasts and site visits data between2005and2010as the sample, the paper investigates how site visits affect the accuracy of analysts’ earnings forecasts and explores how earnings management incentives and information disclosure quality of the forecast firm change the effects of site visits. Results show that site visits of security analysts in China are effective to some extent.The paper finds that site visits can significantly reduce the errors of analysts’ earnings forecasts and improve their accuracy, which means, as an important source for analysts to gather private information, site visits can bring valuable information. The empirical results also provide supportive evidence to previous literature that length of forecast period, firm size, earnings volatility and existence of earnings management incentives have negative effects on the accuracy of analysts’ earnings forecasts. While information disclosure quality and analyst follows have positive effects on the accuracy of analysts’ earnings forecasts.The paper also finds, for firms with obvious earnings management incentives and lower information disclosure quality, site visits can better enhance the accuracy of analysts’ earnings forecasts. Because public information for these firms is more difficult to get and with lower quality, the private information gathered from site visits, which is an effective supplement to the deficiency of public information, can achieve higher marginal benefits.