How does analysts' forecast quality relate to corporate investment efficiency?

Tao CHEN, Lingmin XIE, Yuanyuan, Karen ZHANG

Research output: Journal PublicationsJournal Article (refereed)peer-review

95 Citations (Scopus)


We examine the impact of financial analysts on the efficiency of firms' investment decisions. We use the accuracy and dispersion of financial analysts' earnings forecasts as proxies of analyst expertise and quality in making forecasts. We find that high quality forecast is associated with higher investment if the firm is more likely to under-invest and lower investment if the firm is more likely to over-invest, suggesting that forecast quality increases firm-level investment efficiency. We further show that such effects are stronger for the firms with higher information asymmetry and lower institutional stock ownership. The results are consistent with the notion that higher quality of analyst forecasts increases the information environment and external monitoring, which in turn increases investment efficiency.
Original languageEnglish
Pages (from-to)217-240
Number of pages24
JournalJournal of Corporate Finance
Publication statusPublished - 1 Apr 2017


  • Investment efficiency
  • Over-investment
  • Under-investment
  • analysts' forecast quality

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