Economic Policy Uncertainty And The Quality Of Analysts’ Earnings Forecasts

In recent years,economic policy uncertainty and its economic consequences have attracted numerous attention and discussion of a large number of scholars and policymakers.Since the outbreak of COVID-19 in early 2020,the global economy has faced great downward pressure and various countries around the world have actively adjusted their macroeconomic policies to promote economic recovery.Some time ago,the Central Economic Work Conference clearly pointed out that "Macro policy should maintain continuity,stability,and sustainability." Therefore,studying economic policy uncertainty and its economic consequences has important practical significance.Economic policy uncertainty has a profound impact on macroeconomic activities and the operating decisions of micro-enterprises.As an intermediary agency to transmit information about listed companies,will analysts’earnings forecast behavior be affected?Therefore,using a sample of China economic policy uncertainty index and analysts’ earnings forecasts data from 2007 to 2019,this study examines the effect of economic policy uncertainty on the quality of analysts’ earnings forecasts.We find that:(1)Analysts’ earnings forecast errors are positively correlated with economic policy uncertainty.This indicates that economic policy uncertainty will aggravate the information asymmetry between the companies and analysts,increase the difficulty for analysts to obtain and interpret information,and then lead to a decline in the quality of analysts’ earnings forecasts.(2)When forecasting state-owned enterprises,the negative association between economic policy uncertainty and the quality of analysts’ earnings forecasts is weaker.This indicates that the shock of economic policy uncertainty on private enterprises will be more serious,making it more difficult for analysts to accurately predict future earnings.(3)Product market competition is conducive to reducing the negative impact of economic policy uncertainty on the quality of analysts’ earnings forecasts.This suggests that the companies in highly competitive industries are less sensitive to economic policies and fierce market competition will encourage companies to increase information disclosure,thereby alleviating analysts’ information constraints.Our results are still robust after a series of robustness tests for endogenous problems,variable measurement and sample selection.Furthermore,this study finds that the resource support of large brokerage firms and analysts’ rich experience are not enough to compensate for the negative impact of policy uncertainty on the quality of analysts’ earnings forecasts.Finally,as investors realized that economic policy uncertainty would reduce the quality of analysts’ earnings forecasts,and thus made a weaker market response.This study expands the literature on the microeconomic effects of economic policy uncertainty,and also provides incremental empirical evidence about how macro environment affects the quality of analysts’ earnings forecasts,which is helpful to deepen our understanding of analysts’ earnings forecast behavior.Our study has important practical implications for various participants in the capital market.