Public Information, Private Information, and Financial Analysts’ Forecasts*

Abstract This paper investigates the joint impact of public and private information on analysts’ forecasting behaviour. Information disclosure determines the quality and quantity of public information. The geographical distance between listed firms’ headquarters and brokerage houses determines the difficulty and costs of analysts obtaining private information, which affect the quality and quantity of private information. Firstly, this paper finds results consistent with prior literature that the higher the disclosure level of the firm and the shorter the geographical distance between firms and brokerage headquarters, the more frequently analysts make earnings forecasts and the lower the forecast errors. Furthermore, this paper examines the joint effects of information disclosure and geographical distance on analysts’ forecasts and finds that information disclosure quality imposes a stronger impact on analysts’ forecast frequency and forecast error than distance. Moreover, the effect of geographical distance on the frequency and errors of analysts’ forecasts is manifested only in the case of higher information disclosure quality. These results imply that both public and private information affect analysts’ forecasts but that their effects are asymmetric. Public information has a significantly stronger impact on analysts’ forecasts than private information, and the effect of private information depends on a better public information environment. This paper has significant value to public policy regulators, market participants, stakeholders, and academics in China and can help to increase their understanding of the impact of public and private information on analysts’ forecasts.