Crowding-out or Calling-out? The influence of mandatory industry-related firm-specific information disclosure on analyst reports

Abstract

To improve the information environment, the Chinese stock exchanges issued mandatory industry-related firm-specific information disclosure (IFID) guidelines for various industries in batches from 2013 to 2021. Utilizing the staggered implementation of IFID guidelines, we apply a staggered difference-in-difference method to assess analysts’ reactions to mandatory IFID. Our analysis, which employs text analysis and machine learning techniques, reveals that mandatory IFID stimulates more industry-related firm-specific information in analyst reports, supporting the calling-out effect of IFID on analyst reports. Furthermore, we document that IFID significantly reduces the text similarity of industry-related information across different analyst reports for the same firm, suggesting that analysts engage in more personalized, in-depth industry-related analyses rather than simply replicating the firm’s disclosed information post-IFID. Additionally, IFID prompts analysts to conduct more on-site visits to gather private information and produce more comprehensive industry-related insights. We also explore various factors that may influence the effectiveness of IFID at the industry, firm, and analyst levels. The heterogeneity test results show that the calling-out effect of IFID on analyst reports is strengthened by lower industry competition, better firm transparency, and higher analyst specialization. Overall, our study demonstrates that mandatory IFID in China improves the information environment by directly compelling listed firms to disclose more industry-related operating information and indirectly encouraging analysts to produce more differentiated and insightful analyses.