How diverse information sources shape analyst earnings forecasts: evidence from China

Purpose This study aims to investigate the relevance of environmental, social and governance (ESG) information derived from various sources, namely, ESG rating agencies, corporate ESG disclosures, news media and regulatory authorities – to analyst earnings forecasts for firms in China. Design/methodology/approach The authors construct four normalized and comparable measures to proxy the availability of ESG information provided by each information source, using an ordinary least squares regression model and regressing analyst earnings forecasts on the four ESG information measures. Findings The findings reveal that ESG information obtained from ESG rating agencies, corporate ESG disclosures or media is negatively and significantly associated with analyst earnings forecast errors and dispersion. In contrast, ESG information pertaining to corporate misconduct provided by regulatory authorities does not significantly influence analyst earnings forecasts. The authors further find that greater heterogeneity across ESG information sources weakens the usefulness of ESG information for analyst earnings forecasts. Additionally, cross-sectional analysis reveals that the presence of ESG-oriented analysts amplifies the influence of corporate ESG disclosures on analyst forecasts. Originality/value Overall, the findings suggest that ESG information from different sources holds varying levels of importance for analysts, and the significance of information from each source is contingent upon factors such as the associated information processing costs and analyst expertise.