The effect of short sale constraints on analyst forecast quality: Evidence from a natural experiment in China |
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| Affiliation: | 1. School of Finance, Zhongnan University of Economics and Law, China;2. College of Business, University of Rhode Island, USA;1. University of Rome, Sapienza, Department of Economics and Law, Via del Castro Laurenziano, 9, I-00161 Rome, Italy;2. University of Macerata, Department of Law, Piaggia dell’Università, 2, I-62100 Macerata, Italy;1. School of Finance, Nanjing Audit University, China;2. University of Liverpool, UK;3. Institute of Chinese Financial Studies, Southwestern University of Finance and Economics, China;4. Collaborative Innovation Center of Financial Security, China;1. School of Finance, Southwestern University of Finance and Economics, Chengdu, China;2. Gordon Ford College of Business, Western Kentucky University, Bowling Green, KY, USA;3. School of Accounting, Southwestern University of Finance and Economics, Chengdu, China;1. Department of Finance, School of Business, Renmin University of China, Beijing, 100872, PR China;2. Department of Accountancy, City University of Hong Kong, Kowloon, Hong Kong |
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| Abstract: | We examine the effect of short selling on analyst forecast quality following the pilot program in China in 2010 that allows short selling for selected companies. We find that reduction in short sale constraints significantly improves analyst forecast quality for these pilot-firms when compared to non-pilot firms. Specifically, analyst forecast errors for pilot firms are smaller and forecast dispersions are narrower. Further, we show that the improvement of analyst forecast quality is more prominent for firms with lower prior price efficiencies and disclosure quality, and in locations with lower institutional development. Our findings suggest that short selling activities serve an important role in facilitating the speed of information incorporation and improving the information environment faced by firms. |
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| Keywords: | Short sale Analyst forecast Chinese market G140 G150 G300 |
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