Investor Sentiment, Financing Constraints, and Earnings Persistence

ABSTRACT

Based on the background of investor sentiment volatility in the capital market, this article empirically examines the relationship between investor sentiment and corporate earnings persistence and its impact mechanism using a first-order autoregressive model with a sample of Chinese A-share non-financial listed companies from 2007 to 2019. It is found that rising investor sentiment helps improve corporate earnings persistence when investor sentiment is moderate, with financing constraints playing a part in mediating the effect. The test of heterogeneity in corporate life cycle and nature of ownership found that rising investor sentiment significantly mitigates the financing constraints in growth stage and non-state enterprises, which in turn improves their earnings persistence.

KEYWORDS:

• Investor sentiment
• financing constraints
• earnings persistence
• corporate life cycle
• nature of ownership

JEL:

• G19
• G32
• M41

Disclosure statement

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