Cultural Proximity and the Processing of Financial Information

Du, Qianqian; Yu, Frank; Yu, Xiaoyun

doi:10.2139/ssrn.2225722

Download This Paper

Open PDF in Browser

Add Paper to My Library

Cultural Proximity and the Processing of Financial Information

Journal of Financial and Quantitative Analysis (JFQA), 2017

43 Pages Posted: 28 Feb 2013 Last revised: 10 Jan 2018

See all articles by Qianqian Du

Frank Yu

China Europe International Business School

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); European Corporate Governance Institute (ECGI); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER); China Academy of Financial Research (CAFR)

Date Written: July 15, 2016

Abstract

This paper examines how culture affects information asymmetry in financial markets. We extract firms traded in the U.S. but headquartered in regions sharing Chinese culture (“Chinese firms”), and manually identify a group of U.S. analysts of Chinese ethnic origin (“Chinese analysts”). We find that Chinese analysts issue more accurate forecasts on Chinese firms than non-Chinese analysts. The effect is stronger among firms with less transparent information environments. Further evidence suggests that cultural proximity can go beyond language commonality and analysts’ pre-existing channels for information. Market reaction is stronger when Chinese analysts issue favorable forecast revisions or upgrades about Chinese firms.

Keywords: Culture, Forecast Accuracy, Information Asymmetry, Demographic Economics, Financial Analysts

JEL Classification: G14; G24; F65; J15; J24

Suggested Citation: Suggested Citation

Du, Qianqian and Yu, Frank and Yu, Xiaoyun, Cultural Proximity and the Processing of Financial Information (July 15, 2016). Journal of Financial and Quantitative Analysis (JFQA), 2017, Available at SSRN: https://ssrn.com/abstract=2225722 or http://dx.doi.org/10.2139/ssrn.2225722