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Ran Barniv
Kent State University
Graduate School of Management, CBA
Kent, OH 44242
Phone: 330-672-1112
Fax: 330-672-2545
E-mail: rbarniv@bsa3.kent.edu
Mark Myring
Ball State University
College of Business
Muncie, IN 47306
Phone: 765-285-5108
Fax: 765-285-8024
E-mail: mmyring@bsu.edu
Wayne B. Thomas
University of Oklahoma
Michael F. Price College of Business
307 W. Brooks, Room 212B
Norman, OK 73019
Phone: 405-325-5789
Fax: 405-325-7348
E-mail: wthomas@ou.edu
We appreciate the helpful comments anonymous reviewers and an associate editor of the CAR,
A. Amir, S. Beninga, workshop participants at the universities of Cincinnati, Pennsylvania State,
and Tel Aviv, and participants in a concurrent session of the AAA annual meeting, Hawaii,
August 2003. We also acknowledge Thomson Financial for providing I/B/E/S International and
U.S. Detail History data.
The Association Between the Legal and Financial Reporting
Environments and Forecast Performance of Individual Analysts
Abstract
We test the ability of analyst characteristics to explain relative forecast accuracy across legal
origins (common law versus civil law). Common law countries generally have more effective
corporate governance mechanisms, including stronger investor protection laws and inputs
provided through higher-quality financial reporting systems. In this type of environment,
investors are more willing to compete for superior investment decisions because they expect to
be equitably rewarded, and investors are more likely to demand information about accounting
earnings because earnings have more value relevance. The increased demand by investors for
earnings information increases the economic incentives of analysts to provide more accurate
earnings forecasts. We predict that analysts with superior ability and resources in common law
countries will more consistently outperform their peers because appropriate market-based
incentives exist. In civil law countries, where the demand for earnings information is reduced
because of weaker corporate governance mechanisms and lower-quality financial reporting, we
predict that analysts with superior ability will less consistently provide superior forecasts.
Results are consistent with our expectations and suggest an association between legal and
financial reporting environments and analysts’ forecast behavior.
2
The Association Between the Legal and Financial Reporting
Environments and Forecast Performance of Individual Analysts
1. Introduction
We test the ability of analyst characteristics to explain relative forecast accuracy across
legal origins. In common law countries, where investor protection laws are stronger and financial
reporting is generally perceived to have higher quality (La Porta, Lopez-de-Silanes, Shleifer, and
Vishny 1997, 1998, 2000a; Ball, Kothari, and Robin 2000), the increased demand by investors
for earnings information may create incentives for analysts to provide that information
accurately. Analysts with superior characteristics (e.g., ability, effort, experience, resources, etc.)
are more likely to issue a superior forecast relative to their peers. In civil law countries, weaker
investor protection laws and lower-quality financial reporting may reduce the economic
incentives of analysts to incur costly activities to provide a superior earnings forecast. We expect
that it will be more difficult to relate individual analysts’ characteristics to relative forecast
Examining the relation between relative forecast performance and analyst characteristics
across legal regimes provides evidence outside the United States, where the bulk of this research
has been conducted.1 Understanding analyst behavior in other environments provides additional
insight into how analysts’ efforts in accurately forecasting earnings can contribute to the
informational efficiency of financial markets (Frankel, Kothari, and Weber 2002). The results
also contribute to our understanding of the relation between investors’ demands and analysts’
behavior (Defond and Hung 2002). As the value relevance of reported earnings declines,
investors may have less demand for analysts’ earnings forecasts and demand other sources of
information such as cash flow forecasts.2 Our results may also be helpful in investigating other
related research issues, such as the value relevance of accounting numbers across countries. Prior
1
research has focused primarily on estimating the relation between earnings and stock prices to
understand investors’ demand for accounting earnings (e.g., Ball, Kothari, and Robin 2000; Ali
and Hwang 2000). We extend this literature by examining whether the relation between analyst
characteristics and relative forecast accuracy differs across legal origins consistent with
Consistent with expectations, we find that the relation between analyst characteristics and
relative forecast accuracy is stronger in common law countries. These results are consistent with
analysts’ forecast behavior responding to the demand by investors for earnings information. In
common law countries where investor protection laws are stronger, financial reporting is higher-
quality, and the demand by investors for earnings information is greater, analysts with superior
abilities tend to distinguish themselves more clearly. In civil law countries, it is more difficult to
explain analysts’ relative forecast accuracy. Overall, we find that the relation is strongest in the
United States, followed by non-U.S. common law countries. The relation is weakest in the civil
law countries. Results within the three origins of the civil law classification (French, German,
and Scandinavian) suggest that the quality of financial reporting systems plays a role in these
relations beyond the influence of investor protection laws. Finally, we find some empirical
support for the notion that cash flow forecasts may substitute for earnings forecasts when
earnings are less relevant (Defond and Hung 2002). The relation between analysts’
characteristics and relative cash flow forecast accuracy is stronger in civil law countries than in
The remainder of the paper is organized as follows. Section 2 develops the hypotheses.
Section 3 outlines the research design and section 4 details the data and sample selection. Section
5 reports results and section 6 provides additional analyses. The paper concludes in section 7.
2
2. Hypotheses
We provide the following rationale for our tests. Common law countries are generally
perceived to have stronger investor protection laws (La Porta, Lopez-de-Silanes, Shleifer, and
Vishny 1997, 1998, 2000a)3 and higher-quality financial reporting (Ball, Kothari, and Robin
2000).4 In these settings, earnings information can play a more prominent role in corporate
governance mechanisms and therefore have greater value relevance.5 The greater value relevance
of earnings information increases investors’ demand for that information when making decisions.
The increased demand by investors offers proper economic incentives for analysts to compete in
providing accurate forecasts of earnings. Those analysts having the ability and resources to
outperform other analysts will, on average, do so because the market-based reward structure
established by investor demand offers analysts fair incentives (Schipper 1991). In other words,
the rewards for making accurate forecasts fairly outweigh the cost of gathering and processing
information when investor protection laws are strong and the quality of the financial reporting
system is good. For common law countries, we expect analysts with superior characteristics
(ability, effort, experience, resources, etc.) to more consistently outperform their peers, resulting
In civil law countries, financial accounting systems are generally perceived to be of lower
quality in terms of their ability to reflect accurately the underlying economic activity of the firm
(Ball, Kothari, and Robin 2000; Guenther and Young 2000; Bhattacharya, Daouk, and Welker
2003; Francis, Khurana, and Pereira 2003). Financial accounting practices in civil law countries
are oriented less toward serving the needs of outside investors (O’Brien 1998; Lang, Lins, and
Miller 2004) and investor protection laws are weaker (La Porta, Lopez-de-Silanes, Shleifer, and
3
Vishny 1997, 1998, 2000a). These factors likely weaken the demand by investors for earnings
information, which reduces the economic incentives of superior analysts to outperform their
peers. Providing a superior earnings forecast is costly and analysts with superior abilities and
resources will incur the incremental costs of gathering information only when they expect to be
equitably rewarded. We expect that the reduction in incentives of superior analysts to make
superior forecasts will lead to a weaker relation between analyst characteristics and relative
forecast performance in civil law countries (i.e., relative forecast accuracy occurs more randomly
Furthermore, among the common law countries, prior studies cited in the preceding
paragraphs suggest that the United States has some of the strongest investor protection laws and
higher-quality financial reporting. If investor protection laws and quality of financial reporting
affect the relevance of accounting earnings to investors, one would expect the demand for
earnings information by investors and the incentives of analysts to compete and provide that
information accurately to be greater in the United States than in most of the non-U.S. common
law countries. Similarly, as discussed in the preceding paragraphs, we expect that analysts in
non-U.S. common law countries will have more incentive to compete and provide more accurate
forecasts relative to their peers than will analysts in civil law countries.
4
It is also interesting to consider whether the strength of investor protection laws or the
quality of the financial reporting system offers the greater motivation to analysts to provide
superior forecasts. We examine whether analyst characteristics are useful for explaining relative
forecast accuracy across three groups of civil law countries. Within the civil law origin, La Porta,
Lopez-de-Silanes, Shleifer, and Vishny (1997, 1998) find that countries of the French origin
have weaker investor protection laws than do countries of the German origin. However,
countries of the French origin have higher quality and more transparent financial accounting
information than do countries of the German origin (Ball, Kothari, and Robin 2000; Francis,
Khurana, and Pereira 2003). Thus, the incentives for analysts to provide superior forecasts might
be stronger in the German origin countries because of better investor protection laws or stronger
in the French origin countries because of higher-quality financial reporting. By estimating the
ability of analyst characteristics to explain relative forecast accuracy in the French versus
German origins, we expect to obtain some indication of the impact that investor protection laws,
on the one hand, versus quality of financial reporting, on the other hand, has on the behavior of
analysts.
Relative to other civil law origin countries, the Scandinavian origin has the better investor
protection laws (La Porta, Lopez-de-Silanes, Shleifer, and Vishny 1997, 1998) and the higher-
quality financial reporting (Ball, Kothari, and Robin 2000; Francis, Khurana, and Pereira 2003).
We therefore predict that analyst characteristics will have greater explanatory power for this
5
Table 1 summarizes the strength of investor protection laws and the quality and
transparency of financial reporting and their expected impact on the relative performance of
Extending the model of Jacob, Lys, and Neale (1999), we examine the impact of analyst
the ability of analysts to produce superior forecasts of earnings relative to their peers. One
possible limitation of using their model is that it was developed in a U.S. context. While there
could be other important analyst characteristics in other countries, we believe the United States
provides a good setting for establishing a benchmark model of the way in which analyst
characteristics explain relative forecast accuracy when the demand for earnings information is
high.6
We estimate the following model, where the first 10 variables are those used in Jacob,
Lys, and Neale (1999) and the final three represent additional international attributes of analysts
The dependent variable measures the relative forecast accuracy of analyst k to all other
analysts following company j in year t. AFE is the absolute value of analyst k’s forecast error and
MAFE is the mean absolute forecast error of all analysts issuing a forecast for company j in year
t.7
6
The independent variables are defined as follows:
HORIZ = The number of calendar days between the forecast issue date and the earnings
announcement date.
CHANGE = Dummy variable that takes a value of 1 (0 otherwise) when there has been a change
in the assignment of specific analyst k following company j for a particular brokerage in year
t.8
EXP = The natural log of the number of years analyst k has issued forecasts for company j.
COMP = The number of companies followed by analyst k in the calendar year in which the
SPEC = Percentage of companies followed by analyst k with the same I/B/E/S industry code as
company j.
B-SIZE = Percentile ranking of the total number of analysts employed by the brokerage house to
which analyst k belongs in the calendar year in which the forecast was issued, relative to
B-IND = Percentage of analyst k’s brokerage house analysts which follows company j’s industry
PIN = Portion of new analysts that come from outside the brokerage house relative to the total
number of analysts who worked for analysts k’s brokerage house during the calendar year in
POUT = Portion of analysts who left analyst k’s brokerage house relative to the total number of
analysts who worked for analysts k’s brokerage house during the calendar year in which the
7
C-EXP = Dummy variable that takes a value of 1 (0 otherwise) when analyst k has issued
forecasts for more than three years for any company in a country.9
C-SPEC = Percentage of companies followed by analyst k in the same country where the analyst
B-C = Percentage of analyst k’s brokerage house analysts which follow company j’s country in
The variables HORIZ and FREQ represent analyst activity, EXP and C-EXP stand for
experience, COMP represents portfolio complexity, while SPEC and C-SPEC correspond to
specialization. Finally, internal environmental factors include B-SIZE, B-IND, B-C, PIN, and
POUT. Consistent with prior research, we subtract the mean of the independent variable for each
year for the empirical tests (Clement 1999; Jacob, Lys, and Neale 1999). For the common law
sample, we expect HORIZ, COMP, PIN, and POUT to have a positive relation with relative
forecast error and CHANGE, EXP, SPEC, FREQ, B-SIZE, B-IND, C-EXP, C-SPEC, and B-C to
have a negative relation. We expect the significance of the relations to be higher for the U.S.
sample than for the non-U.S. common law sample. For our civil law sample, we predict that the
The data are obtained from I/B/E/S for the period 1984-2001 (for companies with fiscal
year-end between January 1984 and December 2000). We use the International edition and U.S.
edition of the I/B/E/S Detail History files.10 Summary statistics for the final sample used in our
study are reported in Table 2. The results are aggregated for 12 common law countries and 21
civil law countries. We base our aggregation of the results on legal origins (La Porta, Lopez-de-
8
Silanes, Shleifer, and Vishny 1997, 1998, 2000a). The common law countries are further
separated into the United States and non-U.S. common law countries.11 We further classify the
civil law countries into French origin (11), German origin (6), and Scandinavian origin (4).
Including only the analyst’s most recent annual forecast for each company-year, the
database includes 1,038,329 annual earnings forecasts issued by 30,966 analysts for 27,379
companies. We first exclude observations for countries not included in our data, that are team f
orecasts, and that do not have actual annual earnings available. This reduces the sample to
28,738 analysts in 1,321 brokerage firms who provide 1,012,189 company-year forecasts for
25,933 companies in the 33 countries. We further exclude observations where there are less than
Panel A of Table 2 reports summary statistics for the final sample. The final sample
consists of 673,817 annual forecasts for 15,220 companies, issued by 27,082 analysts who work
for 1,151 brokerage houses. The majority of forecasts (79 percent) were for companies in
common law countries.13 The average number of analyst following per firm-year is greatest in
the U.S. (10.55), followed by non-U.S. common law countries (8.65) and civil law countries
(8.23).14 Panel B of Table 2 shows additional descriptive statistics regarding firm characteristics
for each of the legal regimes. For our sample, we report that civil law companies are, on average,
larger than common law companies. This is important because an overweighting of larger firms
in the common law sample could bias results in favor of our hypotheses. The enhanced
information environment of larger firms increases demand for their securities (Merton 1987),
offering greater economic incentives to superior analysts to outperform their peers. In this case,
civil law countries (i.e., larger firms in our study) rather than common law countries would be
9
expected to exhibit a stronger association between relative forecast accuracy and analyst
characteristics, absent any effects of the legal origin (e.g., investor protection laws, quality of
accounting). We also show that the common law firms have higher earnings to price ratio and
greater analyst forecast errors than the civil law firms. Forecast dispersion among analysts is
approximately the same across origins. We further report descriptive statistics for U.S. versus
non-US companies and for companies in the three civil law origins.
5. Results
Univariate statistics
Table 3 shows the means and medians for variables representing analyst characteristics for
each legal origin. The reported unadjusted amounts provide descriptive statistics for the
independent variables and comparisons between (1) common law and civil law countries, (2) the
U.S. and non-U.S. common law countries, (3) non-U.S. common law countries and civil law
countries, and (4) pairs of the three civil law origin countries.15 In general, the common law
analysts provide significantly shorter forecast horizons, present fewer changes in analysts
following a company, have more experience, follow fewer companies, specialize more in the
same industry, and provide more forecasts for each company than do the analysts in the civil law
countries. They are employed in larger brokerage houses with larger percentages of analysts
following companies in the same industry, and these houses have smaller portions of new and
outgoing analysts than do civil law analysts. Finally, common law analysts have more country-
specific experience, greater specialization in a particular country, and greater brokerage house
10
Further analyses of the descriptive statistics show significant differences between all
characteristics of analysts in the United States and analysts in non-U.S. common law countries.
For example, U.S. analysts have more experience and follow more companies in the same
industry, but they provide fewer forecasts for each company than analysts in the non-U.S.
common law countries. Similarly, all characteristics of analysts in the non-U.S. common law
countries differ significantly from those of the civil law countries. For instance, analysts in the
civil law countries are less experienced, have less country-specific experience, provide less
forecasts for each company, and have a greater forecast horizon. Finally, the comparisons
between the three civil law origin countries show significant t-statistics and Wilcoxon Z-statistics
Test of hypothesis 1
Table 4 presents OLS results for the common law countries and the civil law countries.17
Eleven coefficients are statistically significant in the predicted direction for the common law
sample, but only six coefficients are significant in the predicted direction for the civil law
sample. The coefficients for the forecast horizon (HORIZ) and the analyst-broker turnover
variables (PIN and POUT) are positive (as predicted) and they are significant in the common law
and the civil law countries. The estimated coefficient for portfolio complexity (COMP) is
positive and statistically significant for the common law countries, suggesting that the larger
number of companies followed by an analyst reduces forecast accuracy. This coefficient is not
significant for the civil law countries. The coefficients for frequency (FREQ) are significant and
negative (as predicted) for both origins. The coefficients for analyst specialization (SPEC),
broker size (B-SIZE), and broker-industry specialization (B-IND) are significantly negative (as
11
predicted) for the common law countries, while the coefficients for B-SIZE and SPEC are not
significant (at p <0.05) and B-IND is significant in the unpredicted direction for the civil law
countries. These results suggest that internal environment factors in brokerage houses in civil law
countries do not have the predicted impact on analysts’ relative forecast accuracy as they do in
common law countries. The regression coefficients for experience (EXP) are not statistically
The coefficients for the three international variables are statistically significant for the
common law countries. The coefficients for C-SPEC and B-C are significantly negative (as
predicted) for both origins. The coefficient for C-EXP, however, is significantly positive (not
negative as predicted) for the common law origin and insignificant for the civil law origin. This
result indicates that analysts in common law countries may have reasons to extend their
forecasting activity to other countries (e.g., they may possess private knowledge) and this
The R2 for common law countries is 0.1491 and the R2 for civil law countries is 0.0811,
suggesting that analyst characteristics better explain relative forecast accuracy in the common
law countries than in civil law countries. The Chow test (F = 237.6) suggests that model
coefficients are significantly different across origins.18 The t-statistics for tests of differences in
individual coefficients are also reported in Table 4.19 The results show that portfolio complexity,
specialization, analyst activity, and internal environment factors, but not experience, more
significantly explain (in the predicted directions) analysts’ relative forecast accuracy in the
common law countries than in the civil law countries. Eight of the estimated coefficients in the
common law countries have significantly greater magnitudes, in the predicted directions, than do
12
the corresponding coefficients in the civil law countries. For example, relative forecast accuracy
increases by 0.37 percent per day as the forecast age decreases in the common law countries,
which is significantly faster (t = 36.3) than the 0.23 percent increase per day in the civil law
countries, controlling for other variables in the model. This result suggests that common law
analysts provide more effort and compete more aggressively in utilizing recent information than
do civil law analysts. The relative forecast accuracy increases by 3.97 percent for each additional
forecast issued by analysts (FREQ) in the common law countries, which is significantly greater (t
= 4.97) than the 1.56 percent increase in relative forecast accuracy in the civil law countries. The
differences in the coefficients are not significant for the three international variables. This result
suggests that domestic characteristics have a greater impact on the relative forecast accuracy in
the common law countries than in the civil law countries, but the international characteristics
In sum, the empirical evidence supports our first hypothesis that analyst characteristics
better explain the relative forecast accuracy in common law countries than in civil law countries.
It seems that analysts in common law countries compete to provide superior forecasts more than
do analysts in civil law countries, and those analysts with superior abilities and resources tend to
Test of hypothesis 2
Table 4 also reports the results for comparing the regression model between the United
States and non-U.S. common law countries. In the United States, 10 coefficients are statistically
significant in the predicted direction. One coefficient (C-EXP) is significant in the unpredicted
13
direction.20 Eight coefficients are significant in the predicted directions for the non-U.S. common
law countries. The coefficient for COMP is significant in the unpredicted direction.
The R2s are 0.1494 for the United States and 0.1271 for the non-U.S. common law
countries and the Chow test of differences in model coefficients is significant (F = 75.5).21
Furthermore, of the 10 coefficients significant in the predicted direction for the United States,
eight have a significantly greater magnitude than the corresponding coefficients for the non-U.S.
common law sample. For example, the magnitude of the coefficient for B-SIZE is three times
greater for the U.S. sample than for the non-U.S. common law sample (t = –4.70).
The coefficients for international specialization (C-SPEC) and broker-country factor (B-C)
are significantly negative (as predicted). The coefficient for B-C is significantly more negative
for the United States than for the non-U.S. common law countries (t = –4.09). The coefficients
for C-SPEC, however, are not significantly different. The coefficient for country-specific
experience (C-EXP) is significantly positive (not negative as predicted) for the United States, and
it is not significantly different from the coefficient for the non-U.S. common law countries. In
sum, our results support the second hypothesis. In non-U.S. common law countries, where
investor protection laws and financial reporting are somewhat weaker than in the United States,
Test of hypothesis 3
On the final right column of Table 4, we report results for comparing the regression model
between the non-U.S. common law countries and the civil law countries. The R2 for the non-U.S.
common law countries (0.1271) is greater than that of the civil law countries (0.0811). The
significant Chow test (F = 76.0) suggests that model coefficients are not equal across origins.
14
Four of the variables have a significantly greater magnitude with the predicted signs for
the non-U.S. common law countries than for the civil law countries. The estimated coefficient
for B-C is the only one that is more significant in the civil law countries. Overall, the results
support the third hypothesis, indicating that analyst characteristics have less ability to distinguish
superior analysts in the civil law countries than in the non-U.S. common law countries.
The results in Table 4 support the first three hypotheses. We conclude that analyst
characteristics better explain relative forecast accuracy in countries with stronger investor
protection laws and higher-quality financial reporting. In the United States, where investor
protection laws and financial reporting are generally considered the strongest, we find the most
evidence that analyst characteristics distinguish superior analysts. Furthermore, the evidence is
stronger for non-U.S. common law countries than for civil law countries.
Test of hypothesis 4
Analyses within the civil law countries provide an interesting setting to test the relative
influence of investor protection laws and the quality of financial reporting systems. Compared to
German origin countries, those of French origin have weaker investor protection laws (La Porta,
Lopez-de-Silanes, Shleifer, and Vishny 1997) but higher-quality financial reporting (Ball,
Kothari, and Robin 2000; Francis, Khurana, and Pereira 2003). Which environment provides
superior analysts with stronger incentives to distinguish themselves? If analyst forecast behavior
is related more to quality of financial reporting (strength of investor protection laws), we would
then expect superior analysts to distinguish themselves better in French (German) origin
countries. Therefore, tests within French and German origin classifications provide some insights
into the relative influence investor protection laws and quality of financial reporting can have on
15
investors’ demand for earnings information and analysts’ forecast activities. Since Scandinavian
countries have stronger investor protection laws and higher-quality financial reporting systems
(relative to other civil law countries), we expect this group to provide the strongest evidence of
Table 5 reports regression results by the three civil law origins. The R2s are 0.0980,
0.0881, and 0.0711, respectively, for countries of the Scandinavian, French, and Germanic
origins. Chow tests are significant, suggesting differences in model coefficients across origins.
Six (five) regression coefficients are significant for French (German) origin countries in the
predicted direction.22 Of the six significant coefficients for the French sample, three have a
significantly greater magnitude in the predicted direction than those for the German sample. For
example, the estimated positive coefficient for HORIZ in the French origin countries is
significantly greater than the positive coefficient in the German origin countries (t = 8.29). In
addition, the negative coefficient for EXP (as predicted, but significant only at p < 0.10) for the
French sample is significantly smaller than the significant positive coefficient for the German
sample (t = –3.76).
The greater explanatory power for the Scandinavian sample provides evidence consistent
with analyst behavior being affected by the strength of investor protection laws and quality of
financial reporting. Five coefficients are significant in the predicted direction and three (two) of
these have significantly larger magnitudes in the predicted directions than those reported for the
French (German) sample. The differences between the estimated coefficient of all other variables
in the Scandinavian origin and the other two origins are not significant.
16
None of the coefficients for the Scandinavian sample is significant in the unpredicted
direction, whereas two coefficients are significant in the unpredicted direction for the French and
evidence consistent with analysts responding to investors’ demands for more accurate forecasts.
We base the analyst characteristics used in the model on a reasonable understanding of the
factors likely to distinguish superior analysts. These variables have received empirical support in
the literature. Therefore, the significance of the analyst characteristics in the predicted direction
provides a basis upon which to evaluate the forecast behavior of analysts in different legal and
In summary, within the civil law countries, the greatest and most consistent evidence that
superior analysts distinguish themselves comes from the Scandinavian origin countries, which
have higher-quality financial reporting and stronger investor protection laws. Countries with
stronger investor protection laws but lower-quality financial reporting (i.e., German origin) show
the weakest evidence that analysts strive to outperform their peers. The evidence for the
countries with higher-quality financial reporting but weak investor protection laws (i.e., French
origin) appears to be somewhere in the middle. The differences in the impact of analyst
characteristics on relative forecast accuracy across the civil law countries suggest that while
investor protection laws can influence analyst behavior, they are not the only factors affecting
relative forecast accuracy. The quality, timeliness, and transparency of financial reporting
systems certainly play a role in the demand for earnings information and the incentives of
analysts to distinguish themselves from their peers. These results support the view of Bushman
and Smith (2001) that financial accounting information is an important input to corporate control
mechanism.
17
6. Sensitivity analyses
Cash flow forecasts may substitute for earnings forecasts in countries where earnings
forecasts are less value-relevant to investors (Defond and Hung 2002). Hung (2000) reports that
accruals reduce the value relevance of earnings in countries with weak shareholder protection
(civil law countries), but not in countries with strong shareholder protection (common law
countries). The reduced relevance of accruals in civil law countries likely decreases the relevance
of earnings information to investors and increases the relevance of cash flow information. As
investor demand for information moves from earnings to cash flows, analysts may spend
relatively more time and resources on forecasting cash flows. If this is so, then analyst
characteristics may better explain relative cash flow forecast accuracy in civil law countries. We
provide an analysis of cash flow relative forecast accuracy using the same methodology used for
earnings forecasts. We modify some relevant independent variables (e.g., horizon, experience,
frequency, and country-specific experience) for cash flow forecasts. The other independent
variables are the same as those used for the earnings analyses.
The untabulated results show greater explanatory power for the 13-variable regression in
the civil law countries than in the common law countries. The R2s are 0.146 for the civil law
countries and 0.075 for the common law countries. The Chow test is significant (F = 117.7). The
explanatory powers are approximately the same for the United States and the non-U.S. common
law countries. These findings provide some support for the alternate conjecture that some
analysts in civil law countries may spend more time and resources on forecasting cash flow than
on earnings, as those with superior characteristics tend to more consistently outperform their
18
peers. Again, these results are consistent with analysts responding to investors’ demand for
information.23
We test whether analysts are less likely to continue forecasting when their performance is
bad. We select the worst analyst (i.e., the one with the greatest forecast error) for each firm-year
and estimate the probability that the analyst will forecast earnings for that same company in the
following year. We find that 54.1 percent of the worst analysts from civil law countries provide
forecasts for the same firm next year. Only 34.8 percent and 41.0 percent of the worst analysts
continue to forecast for the same firm in the following year for the United States and non-U.S.
common law countries, respectively. The percentages of worst analysts that continue to forecast
for the same firm are similar across the civil law groups of countries. These results are consistent
with the analyst forecast environment being more competitive in common law countries.
Analysts that provide bad forecasts and therefore fail to meet the information demands of
investors are less likely to continue forecasting earnings for these firms.
In this study, we test the ability of analyst characteristics to explain relative forecast
accuracy across legal origins (common law versus civil law). Common law countries typically
have higher-quality financial reporting systems and stronger investor protection laws. In this type
of environment, the increased demand by investors for earnings information increases the
economic incentives of analysts to provide accurate earnings forecasts. We expect analysts with
superior characteristics (e.g., ability, effort, experience, resources, etc.) to outperform their peers
19
in common law countries. In civil law countries, the demand for earnings information is reduced
because of weaker investor protection laws and lower-quality financial reporting. The reduced
demand by investors for earnings information reduces the incentives for analysts to provide
accurate forecasts. Superior analysts may not be motivated to provide more accurate forecasts if
they have no expectation of being equitably rewarded for their efforts and costs. Thus, we expect
the relative performance of individual analysts to be less systematic, making the relation between
analyst characteristics and relative forecast accuracy weaker in civil law countries.
We find results consistent with analyst behavior being related to legal origins. In common
law countries, analyst characteristics better explain relative forecast accuracy. Analyst
characteristics show the weakest association with relative forecast accuracy in civil law
countries. The strongest evidence that superior analysts have incentives to outperform their peers
comes from the United States, where investor protection laws are arguably more effective and
where financial reporting has higher quality. The evidence of superior analysts outperforming
their peers in non-U.S. common law countries is greater than that in civil law countries but less
than that in the United States. Additional sensitivity analyses support these conclusions and
provide further insights into the impact of legal origin on financial analysts’ activities.
We also examine the relation between relative forecast performance and analyst
characteristics within the civil law countries. Those of French origin have higher-quality
financial reporting systems, while those of German origin have stronger investor protection laws.
The Scandinavian origin countries have higher-quality financial reporting and stronger investor
protection laws relative to other civil law countries. The evidence most consistent with superior
analysts outperforming their peers comes from the Scandinavian origin countries, followed by
the French origin countries. German origin countries provide the least consistent evidence that
20
analysts actively compete to outperform their peers. These results constitute initial evidence that
quality of financial reporting plays an incremental and perhaps larger role in affecting analysts’
forecast behavior and investors’ demand for earnings information than does the strength of
Future research can further understand the impact that legal origin and financial reporting
quality have on investors’ demand for earnings information and analysts’ activities by
considering additional analyst characteristics. In our paper, we use a model developed in a U.S.
context and incorporate some “international” variables. While the U.S. environment is a natural
starting point for a model relating investor demand for earnings information to analysts’
activities, this represents a possible limitation of the study. Other variables in other countries
may lead to additional insights in this area. Another potential for future research would be to
consider how differences in information asymmetry across countries affects the incentives of
superior analysts to outperform other analysts. One might expect superior analysts to have
greater incentives when information asymmetry is high because the gains to exploiting accurate
forecasts may be highest under such situations. However, this expectation would need to be
reconciled to the findings presented in this paper that superior analysts better distinguish
lower.
21
Endnotes:
1. Early studies on the relative forecast accuracy of individual analysts revealed no systematic
differences in abilities (e.g., O’Brien 1987; Coggin and Hunter 1989; O’Brien 1990; Butler
and Lang 1991). More recent research has, however, found some differences (e.g., see
Stickel 1992; Sinha, Brown, and Das 1997). Subsequent research has sought to explain these
differences (Mikhail, Walther, and Willis 1997; Clement 1999; Jacob, Lys, and Neale 1999).
In an international context, Rees, Swanson, and Clement (2003) associate forecast accuracy
2. Francis, Schipper, and Vincent (2002) find a complementary, rather then substitutional,
relation between earnings announcements and analyst reports. Similarly, we assume that the
roles of financial accounting systems and analyst activities are complements rather than
country, and forecasting lower-quality earnings cannot substitute for reporting lower-quality
earnings.
3. Research shows that greater legal protection is associated with more valuable stock markets
and a larger number of listed firms (La Porta, Lopez-de-Silanes, Shleifer, and Vishny 1997),
larger listed firms (Kumar, Rajan, and Zingales1999), greater cross-listing of foreign
companies (Pagano, Randl, Roell, and Zechner 2001), higher valuations for listed firms
(Claessens, Djankov, Fan, and Lang 1999; La Porta, Lopez-de-Silanes, Shleifer, and Vishny
1999a), greater dividend payouts (La Porta, Lopez-de-Silanes, Shleifer, and Vishny 2000b),
lower concentration of ownership and control (La Porta, Lopez-de-Silanes, Shleifer, and
Vishny 1999b; Claessens, Djankov, and Lang 2000), lower private benefits of control
(Zingales 1994; Nenova 1999), and higher correlation between investment opportunities and
22
actual investments (Wurgler 2000). Prior findings on investor protection and equity markets
have also received some theoretical support (Shleifer and Wolfenzon 2000).
4. The development of financial markets is directly related to the quality of financial accounting
information (Black 2001). Countries with more developed financial markets have better
accounting disclosures (Levine 2001; Hope 2003a, b, c), more timely and transparent
accounting information (Ali and Hwang 2000; Ball, Kothari, and Robin 2000; Guenther and
Young 2000), less management of reported earnings (Leuz, Nanda, and Wysocki 2003;
Bhattacharya, Daouk, and Welker 2003; Fulkerson, Jackson, and Meek 2002), higher-quality
earnings (Hung 2000; Fulkerson, Jackson, and Meek 2002), and greater demand for auditing
5. Bushman and Smith (2001) suggest that the corporate control mechanisms can include both
internal mechanisms (e.g., managerial incentive plans) and external mechanisms (e.g.,
monitoring by outside shareholders or debtholders and securities laws that protect outside
6. In the United States, the high demand by investors for earnings information has lead to strong
competition among analysts to forecast that information accurately. In civil law countries, the
relation between analyst behavior and the usefulness of financial accounting information is
less obvious (O’Brien 1998). As the demand for future earnings information weakens,
analysts have fewer economic incentives to outperform their peers and characteristics
identified by the benchmark model should have less ability to explain relative forecast
accuracy.
23
7. We do not focus on whether consensus analyst forecast errors differ across legal regimes.
Analysts’ forecast errors can be affected by a number of factors including economic and
management of analysts’ forecasts, or level of economic development (Basu, Hwang, and Jan
1998). Our within-firm design allows us to identify whether analysts with superior abilities
and resources reliably outperform their peers, while controlling for these potentially
confounding effects.
8. The variable CHANGE refers neither to a change in the overall number of analysts following
CHANGE refers to our firm-year-analyst observations and takes the value one in the first
year t when particular analyst k is assigned or replaced by the brokerage firm for forecasting
9. We use a cut off of three years because it is about the 75th percentile of analysts in most
countries. We assume that the highest quartile could be considered as experienced analysts in
a country. We also measure C-EXP as a continuous variable consistent with EXP, but the
10. On a global scale, I/B/E/S currently receives forecasts from more than 7,000 analysts
representing 800 brokerage firms providing forecasts for approximately 18,000 companies.
Many analysts in our database who provided forecasts in previous years are currently
inactive.
11. Results for the United States are reported separately for testing the second hypothesis and for
two other reasons. First, U.S. observations make up approximately 58 percent of our global
24
sample. Second, reporting separate results for the U.S. sample facilitates comparisons with
prior U.S. studies (Jacob, Lys, and Neale 1999; Clement 1999).
12. Similar to Jacob, Lys, and Neale (1999) and Clement (1999), we require at least three
13. Less than ten percent of the analysts provide forecasts for firms in more than one country.
Observations are classified into legal origin based on firm location rather than analyst
selecting observations from the full common law sample, the U.S. sample, and the non-U.S.
common law sample so that all samples sizes would equal the number of observations for the
civil law sample. The results for the random samples resemble those for the complete
samples reported in Table 4, suggesting that differences in sample size do not confound the
results.
14. Presumably, as the incentives of analysts to follow a firm increase, more analysts will follow
the firm and forecast accuracy will increase (Alford and Berger 1999). We calculate the
correlations (1) between forecast accuracy and number of analysts and (2) between the
change in EPS and the change in the number of analysts following the firm. We find these
correlations are stronger for the United States and non-U.S. common law countries than for
civil law countries. These results provide additional support for the notion that the incentives
of individual analyst to forecast more accurately are stronger in common law countries.
15. While we use the mean-adjusted amounts in the regression analyses, we report unadjusted
raw amounts for each descriptive statistic for the independent variables since subtracting the
annual means from each independent variable produces means equal to zero.
25
16. I/B/E/S history is longer for the United States than for non-U.S. countries. We re-estimate the
results for the sub-periods 1991-2001 and 1995-2001. These more recent samples minimize
the effect of analysts with reported one or two years of experience in the first or second year
of available data. Univariate and OLS results for these subperiods are very similar to those
17. We also examine the model including year-intercept dummies that are not statistically
significant for the regressions reported in Tables 4 and 5. Therefore, these results are not
reported.
18. The Chow F-test (Greene 2003) is used to test whether some or all the regression coefficients
are equal between the common law and civil law origins.
19. The reported t-statistics examine the significance of the difference in slope coefficients
between the civil law and common law regressions. We do not report an alternative
presentation of pooling the observations and using interactive binary variables to test the
differences between the estimated coefficients of the two samples (Kennedy, 1992, pp. 220-
225). These results are not reported for two reasons. First, the t-tests for the differences in
coefficients reported in Table 4 and 5 are the same using either method. Thus, results of
testing the incremental significance of the interactions and the method reported in our paper
are econometrically equivalent. Second, the R2s for each sample would not be available
20. We also compare our results with Jacob, Lys, and Neale (1999) using their ten-variable OLS
regression model. Our untabulated results in the United States resemble theirs. We report
greater explanatory power than them and we obtain significant estimated coefficients for
CHANGE and PIN and insignificant coefficient for EXP. We interpret these findings as
26
results of using more recent data for 1984-2001 (Jacob, Lys, and Neale used 1981-1992),
using annual data -- quarterly data are not available for countries other than the United States
(they used quarterly data), and employing I/B/E/S data (while they use Zack’s database). Our
results are similar to findings reported by Clement (1999) who uses I/B/E/S U.S. annual data
for 1985-1994 and reports adjusted R2s closer to ours, even though four of his seven
21. We also examine results for Canada using 28,437 analyst-company-year observations. The
results (not tabulated) show that the R2 and most estimated coefficients resemble those of the
non-U.S. common law countries rather those reported for the United States.
22. The coefficients for B-IND are significantly positive (not negative as predicted) for the
French and the German origin countries. This result suggests that industry specialization in
the brokerage house increases the relative forecast error rather than decreases it, unlike in the
United States. Contrary to the predictions, analyst experience (EXP) increases relative
forecast error in the German origin countries, and increasing the number of companies
followed (COMP) decreases relative forecast error in the French origin countries.
23. The results should be interpreted with caution since our final cash flow sample includes only
49,654 analyst-firm-year observations with complete data for all variables. Analysts’ cash
flow coverage is very limited in the United States (Defond and Hung 2002). Our cash flow
sample size is less than 1 percent of the U.S. earnings sample, about 15 percent of the non-
U.S. common law earnings sample, and about 19 percent of the civil law earnings sample.
We report results after winsorizing relative cash flow forecast accuracy at the 1st and 99th
percentiles.
27
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31
TABLE 1
Investor protection laws, quality and transparency of financial reporting, and their expected impact on the ability of analyst characteristics to explain relative
forecast accuracy
Expected Impact on
Quality and Transparency of Relative Forecasts
Origin Investor Protection Laws Financial Reporting Accuracy
Efficiency
Antidirector Creditor of Judicial Accrual Disclosure Audit
Rights* Rights* System† Index‡ Index§ Spending#
Common Law** Stronger 4.0 3.11 8.15 Higher 0.76 70.6 0.27 Greater
Civil Law†† Average 2.4 1.83 7.39 Average 0.58 65.1 0.14 Less
United States Strongest 5.0 1.00 10.0 Highest 0.86 71.0 0.24 Greatest
Non-U.S. Common Stronger 3.9 3.23 8.04 Higher 0.74 70.5 0.27 Greater
French‡‡ Weaker 2.3 1.58 6.56 Average 0.64 62.1 0.12 Below average
German§§ Average 2.3 2.33 8.54 Below Avg. 0.43 62.7 0.12 Below average
Scandinavian## Above Avg. 3.0 2.00 10.0 Higher 0.63 74.0 0.22 Average
Numbers reported represent mean amounts obtained from the following studies:
*
La Porta, Lopez-de-Silanes, Shleifer, and Vishny (1998) – higher number indicates more rights, creditor rights may be classified separately.
†
La Porta, Lopez-de-Silanes, Shleifer, and Vishny (1998) – higher number indicates more efficiency.
‡
Hung (2000) – higher number indicates greater use of accruals.
§
Francis, Khurana, and Pereira (2003) – higher number indicates better disclosure.
#
Jaffe (1992) as reported in Francis, Khurana, and Pereira (2003) – higher number indicates more audit spending.
**
Countries in the common law origin are Australia, Canada, Hong Kong, India, Ireland, Malaysia, New Zealand, Singapore, South Africa, Thailand, United
Netherlands, Norway, Philippines, Portugal, Spain, Sweden, Switzerland, Taiwan, and Turkey.
‡‡
Countries in the French origin are Argentina, Belgium, France, Indonesia, Italy, Mexico, Netherlands, Philippines, Portugal, Spain, and Turkey.
§§
Countries in the German origin are Austria, Germany, Japan, South Korea, Switzerland, and Taiwan.
32
##
Countries in the Scandinavian origin are Denmark, Finland, Norway, and Sweden.
33
TABLE 2
I/B/E/S summary statistics for our sample, sample period 1984-2001
Panel A: Number of analysts and forecasts across legal origins
Average
Number of Number of
Number of Firm-Year Number of Firm Analysts
Legal Origin Analysts* Forecasts† Years‡ Following
34
TABLE 2 (continued)
I/B/E/S summary statistics for our sample, sample period 1984-2001
Panel B (continued): Firm characteristics across legal origins.
South Korea, Mexico, Netherlands, Norway, Philippines, Portugal, Spain, Sweden, Switzerland, Taiwan, and
Turkey.
**
Countries in the French origin are Argentina, Belgium, France, Indonesia, Italy, Mexico, Netherlands, Philippines,
35
TABLE 3
Raw univariate statistics: Means (medians) by origin, sample period: 1984-2001*
Panel A: Common law origin, civil law origin, United States, and non-U.S. common law origin.
U.S. vs. Non-U.S.
Non-U.S. Common vs. Non-U.S Common
Common Civil Common Civil common vs. Civil
Law Law United Law t-stat. t- stat. t-stat.
Variables† Origin‡ Origin§ States Origin (Z- stat.)# (Z- stat.)# (Z-stat.)#
HORIZ 123.3 134.6 124.1 121.3 -38.3 §§ 9.44§§ -31.9§§
§§
(95.0) (111.0) (95.0) (93.0) (-27.6) (23.8)§§ (-29.8)§§
§§
CHANGE 0.20 0.21 0.24 0.19 -4.90 12.5§§ -11.4§§
§§
(0.00) (0.00) (0.00) (0.00) (-4.93) (12.4)§§ (-11.4)§§
§§
EXP 0.80 0.59 0.84 0.71 106.1 58.3§§ 48.6§§
§§
(0.69) (0.69) (0.69) (0.69) (88.6) (48.5)§§ (45.6)§§
§§
COMP 25.2 26.2 22.3 32.9 -9.17 -85.6§§ 36.2§§
§§
(17.0) (14.0) (18.0) (16.0) (90.7) (30.4)§§ (47.7)§§
§§
SPEC 0.67 0.51 0.71 0.58 174.2 133.7§§ 51.8§§
§§
(0.80) (0.50) (0.85) (0.64) (166.3) (141.9)§§ (48.9)§§
§§
FREQ 3.56 2.96 3.11 4.78 65.6 -113.0§§ 104.2§§
§§
(3.00) (2.00) (3.00) (3.00) (67.4) (-39.6)§§ (82.2)§§
§§
B-SIZE 0.87 0.84 0.88 0.87 68.9 20.0§§ 18.7§§
§§
(0.94) (0.90) (0.94) (0.91) (67.4) (48.1)§§ (10.6)§§
§§
B-IND 0.13 0.12 0.14 0.10 28.5 127.0§§ -41.1§§
§§
(0.09) (0.09) (0.10) (0.08) (8.23) (90.6)§§ (-32.0)§§
§§
PIN 0.29 0.38 0.27 0.33 -133.2 -88.5§§ -46.0§§
§§
(0.25) (0.33) (0.24) (0.27) (-136.7) (-69.2)§§ (-52.4)§§
§§
POUT 0.25 0.29 0.24 0.29 -65.9 -81.7§§ -6.16§§
§§
(0.21) (0.24) (0.20) (0.23) (-61.6) (-75.4)§§ (-9.20)§§
§§
C-EXP 0.56 0.31 0.61 0.42 177.5 170.5§§ 61.4§§
§§
(1.00) (0.00) (1.00) (0.00) (167.0) (166.9)§§ (60.9)§§
§§
C-SPEC 0.93 0.78 0.98 0.79 113.4 224.1§§ 6.30§§
§§
(1.00) (1.00) (1.00) (1.00) (105.2) (54.8)§§ (23.6)§§
§§
B-C 0.83 0.60 0.91 0.64 205.3 289.2§§ 27.6§§
§§
(1.00) (0.67) (1.00) (0.68) (171.2) (273.6)§§ (16.6)§§
36
TABLE 3 (continued)
Raw univariate statistics: Means (medians) by origin, sample period: 1984-2001*
HORIZ = The number of calendar days between the forecast issue date and the earnings
announcement date.
CHANGE = Dummy variable that takes a value 1 (0 otherwise) when there has been a change in the
EXP = The natural log of the number of years analyst k has issued forecasts for company j.
COMP = The number of companies followed by analyst k in the calendar year in which the
37
SPEC = Percentage of companies followed by analyst k with the same I/B/E/S industry code as
B-SIZE = Percentile ranking of the total number of analysts employed by the brokerage house to
which analyst k belongs in the calendar year in which the forecast was issued, relative to
B-IND = Percentage of analyst k’s brokerage house analysts which follows company j’s industry in
the calendar year in which the forecast was issued (1.00= 100 percent).
PIN = Portion of new analysts that come from outside the brokerage house relative to the total
number of analysts who worked for analysts k’s brokerage house during the calendar year
POUT = Portion of analysts who left analyst k’s brokerage house relative to the total number of
analysts who worked for analysts k’s brokerage house during the calendar year in which
C-EXP = Dummy variable that takes a value of 1 (0 otherwise) when analyst k has issued forecasts
C-SPEC = Percentage of companies followed by analyst k in the same country where the analyst has
B-C = Percentage of analyst k’s brokerage house analysts which follow company j’s country in
the calendar year in which the forecast was issued (1.00= 100 percent).
‡
Countries in the common law origin are Australia, Canada, Hong Kong, India, Ireland, Malaysia, New Zealand,
Singapore, South Africa, Thailand, United Kingdom, and the United States.
§
Countries in the civil law origin are Argentina, Austria, Belgium, Denmark, Finland, France, Germany, Indonesia,
Italy, Japan, South Korea, Mexico, Netherlands, Norway, Philippines, Portugal, Spain, Sweden, Switzerland,
38
††
Countries in the German origin are Austria, Germany, Japan, South Korea, Switzerland, and Taiwan.
‡‡
Countries in the Scandinavian origin are Denmark, Finland, Norway, and Sweden.
§§
Significant at p-value < 0.01.
##
Significant at p-value < 0.05.
39
TABLE 4
Regression of analyst relative forecast accuracy on analyst- broker-specific characteristics, sample period: 1984-
2001
U.S. vs Non-U.S.
Non-U.S Common Non-U.S. Common vs
Common Civil Common vs Civil Common Civil
Predicted Law Law United Law t-stat.§ t-stat.§ t-stat.§
Variables* Sign Origin† Origin‡ States Origin H1: H2: H3:
Intercept -0.0019 -0.0030 0.0001 -0.0056 0.30 1.30 -0.55
(-0.91) (-0.99) (0.04) (-0.87)
HORIZ + 0.0037 0.0023 0.0038 0.0031 36.3** 14.2** 16.2**
(170.2)* (78.4)* (149.3)* (82.0)*
CHANGE -/? -0.0132 0.0018 -0.0227 0.0119 -2.29†† -4.70** 1.18
(-4.17)* (0.31) (-6.23)* (1.86)
EXP - -0.0037 0.0038 0.0011 0.0047 -1.28 -0.54 0.10
(-1.39) (0.73) (0.35) (0.79)
COMP + 0.0002 -0.0001 0.0007 -0.0004 2.77** 6.32** -1.70
(2.88)* (-1.13) (6.18)* (-2.95)*
SPEC -/? -0.0551 0.0076 -0.0620 -0.0260 -4.97** -2.28†† -1.99††
(-7.86)* (0.72) (-7.39)* (-1.96)**
FREQ - -0.0397 -0.0156 -0.0535 -0.0356 -16.9** -12.3** -12.4**
(-51.3)* (-13.5)* (-54.5)* (-33.2)*
B-SIZE - -0.220 -0.040 -0.230 -0.080 -6.89** -4.70** -1.17
(-18.6)* (-1.87) (-17.8)* (-2.99)*
B-IND - -0.0318 0.1760 -0.0250 -0.0218 -5.07** -0.06 -3.16**
(-2.16)** (4.60)* (-1.60) (-0.44)
PIN + 0.0420 0.0367 0.0296 0.0512 0.37 -1.19 0.78
(4.88)* (3.17)* (2.76)* (3.50)*
POUT + 0.1385 0.0888 0.1632 0.0920 50.4** 3.95** 0.18
(15.7)* (7.42)* (14.7)* (6.48)*
C-EXP - 0.0082 0.0086 0.0076 0.0077 -0.07 -0.02 -0.11
(2.92)* (1.55) (2.27)** (1.39)
C-SPEC - -0.0418 -0.0239 -0.0636 -0.0402 -1.23 -0.48 -1.00
(-3.72)* (-2.58)** (-2.63)* (-2.98)*
B-C - -0.0734 -0.0784 -0.0908 -0.0351 0.46 -4.09** 8.31**
(-11.3)* (-8.63)* (-10.0)* (-3.44)*
Chow-F# 237.6 ** 75.5** 76.0**
2
R 0.1419 0.0811 0.1494 0.1271
Obs. 535,462 138,355 390,121 145,341
*
Independent variables are defined in Table 3 and country classifications are defined in Table 1. White adjusted t-
40
‡
Civil law countries are Argentina, Austria, Belgium, Denmark, Finland, France, Germany, Indonesia, Italy, Japan,
South Korea, Mexico, Netherlands, Norway, Philippines, Portugal, Spain, Sweden, Switzerland, Taiwan, and
Turkey.
§
Amounts shown represent tests of differences in coefficient betweens the two groups.
#
The Chow statistics test that the vectors of estimated coefficients are the same for the two groups.
**
Significant at p-value < 0.01.
††
Significant at p-value < 0.05.
41
TABLE 5
Regression of analyst relative forecast accuracy on analyst- broker-specific characteristics in the Civil law
countries, sample period: 1984-2001
42
††
Significant at p-value < 0.01.
‡‡
Significant at p-value < 0.05.
43