Political Uncertainty and Analyst Performance

• In Event: Macroeconomics, Politics, and Accounting

Abstract

This study examines whether political uncertainty affects the forecasting performance of financial analysts. We conjecture that political uncertainty increases the complexity of the forecasting task for analysts, resulting in less accurate earnings forecasts. We find strong evidence that forecast accuracy decreases in the presence of political uncertainty. We also document that the negative association between forecast accuracy and political uncertainty is more pronounced when political uncertainty is particularly high and when firms are more sensitive to political uncertainty. Our results hold consistently across alternative measures of political uncertainty and analyst performance. Collectively, our evidence suggests that political uncertainty contributes to the complexities analysts encounter in predicting firm performance.

Authors

• Vishal Baloria, Boston College

• KALEAB MAMO, University of Waterloo