Product Market Power,Industry Concentration,and Analyst Forecast Activity

Analyst forecasting is a vital approach to release information.Their forecasting will impact the overall capital market and thus the resource allocation.Analyst forecasting report will have direct effect on participants’ activities in capital market.Therefore,the market efficiency is expected to be influenced through significant market fluctuations.Since analyst forecast activity plays a crucial role in asset pricing and company valuation and in turn affect the volatility of stock price and operating decisions of a company,factors which impacts analyst forecast activity have drawn more and more attention among academia.Product market competition is a "double-edged sword" embedded with both opportunities and challenges now that China has been a member of WTO and market economy has grown more mature,which brings more fierce market competition.Recent studies have found that competition intensifying will alter the operating environment of a company drastically.Hence,company will be faced with higher uncertainty,which will affect the performance of the company as well as operating decisions.Owing to company’s performance and operating decisions as an essential information source for analyst forecast,product market competition has provided us with a new view to study its effect on analyst forecast activity.However,prior literature concerning the effect of product market competition(including both firm-level market power and industry level industry concentration)on analyst forecast activity is mixed.Given such shortcomings and controversy,we attempt to study analyst forecast activity from product market competition angle.This paper investigates the effects of product market power and industry concentration on analyst forecast activities,by using a sample of Shanghai and Shenzhen publicly listed companies over the 2006-2014 period.We find that both firm-level market power and industry-level concentration are positively associated with analyst following and forecast accuracy.Furthermore,the influence of market power on analyst following and forecast accuracy in State-Owned Enterprises(SOEs)is greater than that in non-SOEs.Nevertheless,industry concentration has negative impacts on analyst following and the effect of industry concentration on forecast accuracy is no longer significant in non-SOEs.These conclusions are verified after a quasi-natural experiment and a series of robustness tests.Hence,these findings contribute to the extant research on the influential factors of analyst forecast activities.