Political uncertainty and analysts’ forecasts: Evidence from China

We examine the impact of political uncertainty on analysts’ earnings forecast accuracy and forecast dispersion. Using the turnover of local government leaders in China, we find robust evidence that there is a reduction in forecast accuracy and an increase in forecast divergence in the presence of political uncertainty. Further, we document the negative relationship between political uncertainty and forecast accuracy is more pronounced when the level of political uncertainty is higher and when companies are more sensitive to political uncertainty. Our findings extend our understanding of political uncertainty to analysts’ behaviors.