Product market competition and analyst forecasting activity: International evidence |
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| Institution: | 1. Department of Money and Banking, College of Commerce, National Chengchi University, Taiwan;2. Department of Finance, College of Business, Chung Yuan Christian University, Taiwan;3. Department of Finance, College of Commerce, National Chengchi University, Taiwan;4. Risk and Insurance Research Center, College of Commerce, National Chengchi University, Taiwan;1. Kent State University, Department of Accounting, College of Business Administration, P.O. Box 5190, Kent, OH 44242-0001, United States;2. Wake Forest University, Schools of Business, P.O. Box 7659, Winston-Salem, NC 27109, United States |
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| Abstract: | In this study, we investigate how product market competition affects the extent of analyst following and the properties of analyst forecasts. Using a broad sample of firms from 37 countries over the 1990–2008 period, we find that firms that operate in more concentrated industries and with stronger pricing power are associated with greater analyst following, higher forecast accuracy, and lower forecast dispersion. Moreover, the effect of product market power on analyst following and forecast properties is more pronounced in countries with less effective competition laws and higher entry costs. These findings suggest that high industry concentration and a dominant market position enhance the earnings predictability of firms and lower their information uncertainty, and that country-level institutions that promote competition effectively constrain the power in product markets. |
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| Keywords: | Product market competition Analyst following Forecast accuracy Forecast dispersion Competition laws |
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