“The Role of Social Capital in Information Dissemination: Evidence from Analyst” by Miss Jing Dai
Accounting & Law Seminar
Miss Jing Dai
Ph.D. Candidate in Accounting
Zicklin School of Business
Baruch College, City University of New York
This study explores the role of social environment in information dissemination by examining the link between social capital and analyst forecast accuracy and informativeness to investors. Using a countylevel measure of social capital, I find that firms headquartered in counties with high social capital exhibit greater forecast accuracy than firms headquartered in low social capital counties. I find that the effect of social capital is more pronounced when firms’ headquarters are close to analyst brokerage firms, suggesting that geographically proximate analysts have more channels to collect information and improve forecast accuracy. I also show that the effect of social capital on analyst forecast accuracy is more pronounced when a firm’s operation is more complex, indicating that high social capital reduces analysts’ time and effort to verify the reported earnings when a firm has more complicated operations. In addition, I find that investors react more strongly to analyst forecast for firms headquartered in counties with low social capital, suggesting that the analyst’s role as an information intermediary is more valuable in this setting. To better establish causality, I employ the relocation of firms headquarters to generate variations in social capital and find that analyst forecast error and forecast informativeness decrease when a firm relocates to a higher social capital county. The results are robust to controlling for regional fixed effects, accounting quality, management guidance, analyst fixed effects, and alternative measures of social capital. In sum, these findings suggest that social capital facilitates information dissemination through accelerating information collection and increasing information reliability.