Using Chinese data, we find that analysts’ earnings forecasts are more accurate and less biased when analysts are socially connected with the company’s signatory auditor. We also find that forecast performance improves following mandatory auditor rotations that result in new analyst-auditor connections and declines following mandatory rotations that terminate existing connections. We further find that our results become stronger when the information that auditors possess is likely to be more useful to analysts, that connected analysts have better career outcomes than unconnected analysts, and that investors and other analysts are more responsive to forecast revisions issued by connected analysts. Finally, we find that connected auditors provide higher quality audits to their connected clients and are more likely to retain those clients. Overall, our findings are consistent with connected analysts benefitting from private information obtained from their social connections with auditors by providing better earnings forecasts, and in turn, with auditors benefitting from information they receive from connected analysts by delivering higher quality audits that improve client retention.

This paper investigates the impact of local fintech development on analysts’ earnings forecast accuracy. We use the method of web text mining to construct the local fintech development index for empirical test and find that local fintech development significantly improves analysts’ earnings forecast accuracy by promoting firm digital transformation, improving firm information transparency, and alleviating the information asymmetry between firms and outsiders. Furthermore, this effect is more significant for analysts without equity pledge associations and those with weaker buy-side pressure. This study shows that local fintech development can optimize the capital market information environment.

This paper examines analysts’ catering behavior to current investor demand proxied by the unbalanced stock market reactions towards optimistic forecasts and nonoptimistic forecasts (optimism premium). Using data on earnings forecasts issued by Chinese sell-side analysts during the period 2014-2018, we find that optimism premium significantly increases analysts’ tendency to issue optimistic forecasts, in other words, analysts do cater to investor demand. Implications for theory and practices are discussed.

This paper examines whether sell-side analysts struggle to cope with macroeconomic uncertainty. We find that analysts issue more accurate earnings forecasts when facing higher economic policy uncertainty, which conflicts with the conclusions in the US. We provide a novel explanation for this finding and exclude the view that forecast accuracy improvement comes from analysts’ efforts to actively collect private information through site visits. Further evidence supports that heuristic cognitive bias and emotional framing effect hold back analysts’ tendency to optimism in China, resulting in higher forecast accuracy. As to why Chinese analysts do not work harder but issue more accurate forecasts, we suggest that it is mainly due to the different market regimes faced by analysts in the two countries. Our study sheds light on how macroeconomic uncertainty affects analysts’ unethical behavior and explains the cognitive processes involved.