Language barriers, corporate site visit, and analyst forecast accuracy

• Published in: The Quarterly review of economics and finance 2023-10, Vol.91, p.68-83
• Main Authors: Tam, Lewis H.K., Tian, Shaohua
• Format: Article
• Language: English
• Subjects: Corporate site visit; Financial analysts; Forecast accuracy; Linguistic distance
• ISSN: 1062-9769; 1878-4259
• DOI: 10.1016/j.qref.2023.07.010

This study examines the impact of language barriers on financial analysts’ decisions to perform corporate site visits and the extent to which corporate site visits help analysts overcome language barriers to improve earnings forecast accuracy. Using a sample of analysts’ visits to listed firms on the Shenzhen Stock Exchange, we find that analysts are more likely to visit firms headquartered in areas where local dialects are largely different from Standard Mandarin. Moreover, corporate site visits increase analysts’ forecast accuracy more for those firms. Altogether, the findings suggest that language barriers create difficulties for analysts in obtaining information via verbal communication, and corporate site visits help analysts reduce the communication noise. •Language barriers between analysts and corporate managers result in communication loss in pure verbal conversation.•A site visit improves an analyst’s forecast accuracy when pure verbal communication is expected to be ineffective.•The study contributes to the literature on the economic and financial impacts of language barriers.