Product market competition, investor protection and analysts’ earnings forecasts

Abstract

Purpose

This study aims to examine the effects of product market competition (PMC) on analysts’ earnings forecast attributes, particularly forecast accuracy and dispersion. The authors also investigate whether investor protection moderates the relationship between PMC and forecast attributes.

Design/methodology/approach

The sample covers 49,578 firm-year observations from 38 countries. This study uses an ordinary least squares regression, a Heckman two-stage regression and an instrumental two-stage least squares regression.

Findings

This study finds that PMC is associated with higher forecast accuracy and lower dispersion. The results also show that investor protection enhances the effect of PMC on forecast accuracy and dispersion. These findings imply that countries with strong investor protection have a better information environment, as exhibited by the stronger relationship between PMC and analysts’ forecast properties.

Practical implications

The findings highlight the importance of strong governance mechanisms in both the country and industry environments. Policymakers, including government agencies and financial regulators, can leverage these insights to formulate regulations that promote competition, ensure investor protection and facilitate informed investment decisions.

Originality/value

This study advances our understanding of how PMC affects analysts’ earnings forecast attributes. In addition, it pioneers evidence of the moderating role of investor protection in the relationship between PMC and forecast attributes.

Citation

Kamarudin, K.A., Wan Ismail, W.A., Chapple, L. and Truong, T.P. (2023), "Product market competition, investor protection and analysts’ earnings forecasts", Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-04-2023-0184