Industrial policy conflicts and their impact on analysts' forecast accuracy and behavior

Abstract Policy conflicts can confuse and disrupt information interpretation in capital markets. This study finds that earnings forecast dispersion rises and accuracy declines when central and local government policies conflict. Effects are stronger for non‐local analysts, firms in low fiscal autonomy regions, and state‐owned enterprises. Additional analyses indicate that the findings are linked to both firm‐level and industry‐level uncertainty and are primarily driven by the “effect uncertainty” surrounding policy implementation. Analysts respond by increasing on‐site visits, lengthening reports, and issuing more frequent revisions. Altogether, this article highlights the unintended consequences of government policy on the quality and characteristics of analysts' forecasts.