Does Social Trust Affect Analysts’ Forecast? Evidence from China

ABSTRACT

Using a sample of companies listed in the Chinese stock market between 2007 and 2019, this article investigates the effect of social trust on analysts’ forecasts. Our results show that regional social trust can lower analysts’ forecast errors and analysts’ forecast dispersion, that is, it improves analysts’ forecast quality. The institutional environment and state-owned property exacerbate these positive effects. Furthermore, the role of social trust in improving the quality of analysts’ forecasts is more significant in listed companies with a poor information environment. We also find that social trust improves analysts’ forecast quality by improving earnings quality. After some robustness tests, our main conclusions are still valid. Overall, the findings reveal social trust affects analyst’s forecasts.

KEYWORDS:

• Social trust
• analysts’ forecast errors
• analysts’ forecast dispersion
• institutional environment
• earnings quality

Acknowledgments

Lin Pan acknowledges the financial support of the General Humanities and Social Sciences Research Project of Zhejiang Province (20NDJC164YB), the Social Sciences Planning Project of Fujian Province (FJ2018B066), Natural Science Foundation of Fujian Province (2021J011206), the Soft Science Project of Zhejiang Province (2021C35023), and the High-level Talents Research Start-up Funds of Xiamen University of Technology (YSK20009R).

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by the Natural Science Foundation of Fujian Province [2021J011206]; Social Sciences Planning Project of Fujian Province [FJ2018B066]; Soft Science Project of Zhejiang Province [2021C35023]; General Humanities and Social Sciences Research Project of Zhejiang Province [20NDJC164YB]; High-Level Talents Research Start-up Funds of Xiamen University of Technology [YSK20009R].