Analysts’ foreign ancestral origins and firms’ information environment

PurposeThe purpose of this study is to examine whether and how analysts’ foreign ancestral origins would have an effect on analysts’ earning forecasts in particular and ultimately on firms’ information environment in general.Design/methodology/approachBy inferring analysts’ ancestral countries based on their surnames, this study empirically examines whether analysts’ ancestral countries affect their earnings forecast errors.FindingsUsing novel data on analysts’ foreign ancestral origins from more than 110 countries, this study finds that relative to analysts with common American surnames, analysts with common foreign surnames tend to have higher earnings forecast errors. The positive relation between analyst foreign surnames and earnings forecast errors is more likely to be observed for African-American analysts and analysts whose ancestry countries are geographically apart from the USA. In contrast, this study finds that when analysts’ foreign countries of ancestry are aligned with that of the CEOs, analysts exhibit lower earnings forecast errors relative to analysts with common American surnames. More importantly, the results show that firms followed by more analysts with foreign surnames tend to exhibit higher earnings forecast errors.Originality/valueTaken together, findings of this study are consistent with the conjecture that geographical, social and ethnical proximity between managers and analysts affect firms’ information environment. Therefore, this study contributes to the determinants of analysts’ earnings forecast errors and adds to the literature on firms’ information environment.