Natural disasters and analysts' earnings forecasts |
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| Affiliation: | 1. Antai College of Economics & Management, Shanghai Jiao Tong University, Shanghai 200030, China;2. School of Management, Zhejiang Shuren University, Hangzhou 310015, China;3. School of Finance, Nanjing University of Finance and Economics, Nanjing 210023, China;4. School of Management, Fudan University, Shanghai, 200433, China;5. Department of Finance, Deakin Business School, Deakin University, Melbourne, Australia;1. South China Business College of Guangdong University of Foreign Studies, China;2. Guangzhou Xinhua University, China;3. Xiamen National Accounting Institute, China;4. School of Management, Xiamen University, China;1. Otto-von-Guericke University, Universitätsplatz 2, P.O. Box 4120, Magdeburg 39114, Germany;2. Halle Institute for Economic Research (IWH), P.O. Box 110361, Halle (Saale) 06017, Germany;1. Government Accounting Research Institute, Research Institute of Social Science, Zhongnan University of Economics and Law, China;2. School of Economics, Huazhong University of Science and Technology, China;3. School of Finance, Zhongnan University of Economics and Law, China |
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| Abstract: | The effects of natural disasters on capital markets have been investigated by limited evidence even though these calamities bring considerable damages or loss of life. To fill this gap, we investigate the impacts of natural disasters, particularly earthquakes, on security analysts' earnings forecasts for affected firms in China. We obtain three key findings. First, analysts' optimism significantly decreases for firms located in neighborhood areas. Second, earthquakes do not significantly affect firm earnings and stock returns, thereby indicating that post-earthquake analyst pessimism is not based on rational judgment. Third, media attention promotes irrational pessimism among analysts, and post-earthquake pessimism is a result of heuristics bias attributable to psychological shocks. However, analysts correct the bias after initial irrational forecasts. Taken together, our findings contribute to the broader psychology and economics literature on the effects of natural disasters on analyst forecasts. |
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