Central bank communication and macro information in analyst forecasts: Evidence from Chinese listed firms

Abstract

The paper examines how central bank communication affects the macro information in analyst forecasts. Using quarterly data of Chinese-listed firms from 2007 to 2018, we find that richer and more frequent central bank communication increases the macro information contained in analyst forecasts. This effect is realized through the employment of in-house economists by security firms. In addition, we document that the effect of central bank communication on macroeconomic information in analyst forecasts is more salient under a contractionary monetary policy regime, during a bear market, or when the economic policy is more uncertain. We also show that analyst forecasts are more sensitive to central bank communication when firms that they follow are state-owned enterprises, have larger leverage ratios, or are located in more developed regions. In addition, analyst forecasts are more susceptible to central bank communication when the communication is in an informal oral format, when the public has more trust in the credibility of the central bank communication, and when the central bank pays more attention to expectation management after 2010. Finally, we show that richer and more frequent central bank communication also improves the accuracy of analyst forecasts.