Advertisement

Review of Accounting Studies

, Volume 21, Issue 4, pp 1245–1286 | Cite as

Seeing is believing: analysts’ corporate site visits

  • Qiang Cheng
  • Fei Du
  • Xin Wang
  • Yutao Wang
Article

Abstract

This study examines the impact of corporate site visits on analysts’ forecast accuracy based on a sample of such visits to Chinese listed firms during 2009–2012. We find that analysts who conduct visits (“visiting analysts”) have a greater increase in forecast accuracy than other analysts. Consistent with the notion that site visits facilitate analysts’ information acquisition through observing firms’ operations, we find that the results are stronger for manufacturing firms, firms with more tangible assets, and firms with more concentrated business lines. Moreover, we find that the effect of a site visit is greater when the site visit is an analyst-only visit, when the current visit is preceded by fewer visits, and when visiting analysts are based far from the visited firms. Furthermore, we find that site visits partially mitigate nonlocal analysts’ information disadvantage. Collectively, these results indicate that site visits are an important information acquisition activity for analysts.

Keywords

Site visits Analyst forecasts Information acquisition activities Local advantage 

JEL Classifications

G10 G24 M41 

Notes

Acknowledgments

We greatly appreciate the helpful comments and suggestions from Sarah Bonner, Brian Bushee, Andrew Call, Kevin Chen, Shuping Chen, Xia Chen, Patricia Dechow (Editor), Mark DeFond, Mei Feng, Ole-Kristian Hope, Marcus Kirk, Jing Liu, Stan Markov, Steve Matsunaga, Chul Park, Joseph Piotroski, Nathan Sharp, Doug Skinner, T.J. Wong, Guochang Zhang, two anonymous reviewers, and conference and workshop participants at the 2013 Alumni Symposium of USC Leventhal School of Accounting, 2014 CKGSB Colloquium, 2014 Chinese University of Hong Kong CiG conference, 2015 EAA Annual Congress, 2015 AAA annual conference, 2015 University of Wisconsin-Madison Alumni Research Conference, the University of Hong Kong, and Hong Kong University of Science and Technology. We gratefully acknowledge the financial support provided by the General Research Fund of Hong Kong Research Grants Council (Project No. 790613) and the National Natural Science Foundation of China (Project No. 71102124). Cheng gratefully acknowledges funding from the Lee Kong Chian Fellowship.

References

  1. Abarbanell, J. S., Lanen, W. N., & Verrecchia, R. E. (1995). Analysts’ forecasts as proxies for investor beliefs in empirical research. Journal of Accounting and Economics, 20(1), 31–60.CrossRefGoogle Scholar
  2. Asquith, P., Mikhail, M., & Au, A. (2005). Information content of equity analyst reports. Journal of Financial Economics, 75(2), 245–282.CrossRefGoogle Scholar
  3. Bae, K. H., Stulz, R. M., & Tan, H. (2008). Do local analysts know more? A cross-country study of the performance of local analysts and foreign analysts. Journal of Financial Economics, 88, 581–606.CrossRefGoogle Scholar
  4. Bradshaw, M. (2011). Analysts’ forecasts: What do we know after decades of work? Unpublished working paper. Boston College.Google Scholar
  5. Brown, L. D., Call, A. C., Clement, M. B., & Sharp, N. Y. (2015). Inside the “Black Box” of sell-side financial analysts. Journal of Accounting Research, 53(1), 1–47.CrossRefGoogle Scholar
  6. Bushee, B. J., Jung, M. J., & Miller, G. S. (2013). Do investors benefit from selective access to management? Unpublished working paper. University of Pennsylvania, New York University, and University of Michigan.Google Scholar
  7. Call, A. C., Chen, S., & Tong, Y. H. (2013). Are analysts’ cash flow forecasts naïve extensions of their own earnings forecasts? Contemporary Accounting Research, 30(2), 438–465.CrossRefGoogle Scholar
  8. Chen, X., Cheng, Q., & Lo, K. (2010). On the relationship between analyst reports and corporate disclosures: Exploring the roles of information discovery and interpretation. Journal of Accounting and Economics, 49(3), 206–226.CrossRefGoogle Scholar
  9. Cheng, Q., Du, F., Wang, X., & Wang, Y. (2015). Are investors’ corporate site visits informative? Working paper. Singapore Management University, The University of Hong Kong, and Central University of Finance and Economics.Google Scholar
  10. Clement, M. B. (1999). Analyst forecast accuracy: Do ability, resources, and portfolio complexity matter? Journal of Accounting and Economics, 27(3), 285–303.CrossRefGoogle Scholar
  11. Clement, M. B., & Tse, S. V. (2003). Do investors respond to analysts’ forecast revisions as if forecast accuracy is all that matters? The Accounting Review, 78(1), 227–249.CrossRefGoogle Scholar
  12. Cohen, L., Frazzini, A., & Malloy, C. (2010). Sell-side school ties. Journal of Finance, 65(4), 1409–1437.CrossRefGoogle Scholar
  13. Coval, J. D., & Moskowitz, T. J. (2001). The geography of investment: Informed trading and asset prices. Journal of Political Economy, 109(4), 811–841.CrossRefGoogle Scholar
  14. Green, T. C., Jame, R., Markov, S., & Subasi, M. (2014a). Broker-hosted investor conferences. Journal of Accounting and Economics, 58(1), 142–166.CrossRefGoogle Scholar
  15. Green, T. C., Jame, R., Markov, S., & Subasi, M. (2014b). Access to management and informativeness of analyst research. Journal of Financial Economics, 114(2), 239–255.CrossRefGoogle Scholar
  16. Gu, Z., Li, Z., & Yang, G. Y. (2013). Monitors or predators: The influence of institutional investors on sell-side analysts. The Accounting Review, 88(1), 137–169.CrossRefGoogle Scholar
  17. Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of empirical disclosure literature. Journal of Accounting Economics, 31(1–3), 405–440.CrossRefGoogle Scholar
  18. Hong, H., & Kubik, J. D. (2003). Analyzing the analysts: Career concerns and biased earnings forecasts. Journal of Finance, 58, 313–352.CrossRefGoogle Scholar
  19. Ivkovic, Z., & Jegadeesh, N. (2004). The timing and value of forecast and recommendation revisions. Journal of Financial Economics, 73(3), 433–463.CrossRefGoogle Scholar
  20. Jacob, J., Lys, T. Z., & Neale, M. A. (1999). Expertise in forecasting performance of security analysts. Journal of Accounting and Economics, 28(1), 51–82.CrossRefGoogle Scholar
  21. Keung, E. C. (2010). Do supplementary sales forecasts increase the credibility of financial analysts’ earnings forecasts? The Accounting Review, 85(6), 2047–2074.CrossRefGoogle Scholar
  22. Malloy, C. J. (2005). The geography of equity analysis. Journal of Finance, 60(2), 719–755.CrossRefGoogle Scholar
  23. Mayew, W., Sharp, N., & Venkatachalam, M. (2013). Using earnings conference calls to identify analysts with superior private information. Review of Accounting Studies, 18(2), 386–413.CrossRefGoogle Scholar
  24. Mikhail, M. B., Walther, B. R., & Willis, R. H. (1997). Do security analysts improve their performance with experience? Journal of Accounting Research, 35(3), 131–157.CrossRefGoogle Scholar
  25. Morck, R., Yeung, B., & Yu, W. (2000). The information content of stock markets: Why do emerging markets have synchronous stock price movements? Journal of Financial Economics, 58(1–2), 215–260.CrossRefGoogle Scholar
  26. O’Brien, P., & Bhushan, R. (1990). Analyst following and institutional ownership. Journal of Accounting Research, 28(3), 55–82.CrossRefGoogle Scholar
  27. Solomon, D., & Soltes, E. (2015). What are we meeting for? The consequences of private meetings with investors. Journal of Law and Economics, 58(2), 325–355.CrossRefGoogle Scholar
  28. Soltes, E. (2014). Private interaction between firm management and sell-side analysts. Journal of Accounting Research, 52(1), 245–272.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Singapore Management UniversitySingaporeSingapore
  2. 2.The University of Hong KongPokfulamHong Kong
  3. 3.Central University of Finance and EconomicsBeijingChina

Personalised recommendations