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Analyst earnings forecast precision and local advantage: evidence from American depositary receipt firms
Author(s) -
Comiran Fernando,
Siriviriyakul Subprasiri
Publication year - 2019
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12311
Subject(s) - earnings , receipt , econometrics , disadvantage , accounting , business , economics , financial economics , computer science , artificial intelligence
Prior research has documented a finding that local analysts provide more accurate earnings forecasts than nonlocal analysts in many settings. However, little is known about local and nonlocal analysts’ relative earnings forecast abilities for ADR stocks. In this study, we find that the local advantage disappears for ADR stocks and that nonlocal analysts in fact outperform local ones in this case. We investigate the source of this ‘local disadvantage’ and find evidence against hypotheses based on accounting standards and exchange rates. We document that the local advantage decreases with increased investor interest in foreign firms, consistent with our nonlocal investors’ interest hypothesis.