Deakin University
Browse

File(s) under permanent embargo

Foreign exchange exposure and analysts’ earnings forecasts

journal contribution
posted on 2023-02-06, 01:45 authored by Iliyas Mohammad YusoffIliyas Mohammad Yusoff, C Chen, Karen LaiKaren Lai, V Naiker, J Wang
This study examines how movements in a firm's exposure to foreign exchange (forex) rates affect the properties of analysts’ earnings forecasts. Our results suggest that analysts’ forecast errors and dispersion increase with an increase in forex exposure within firms. These findings are robust to a wide range of robustness tests, including a quasi-experimental setting based on the sudden unpegging of the U.S. Dollar against the Chinese Yuan. Additional tests reveal that analysts spend more effort forecasting when firms experience an increase in forex exposure. Consistent with an increase in uncertainty of firm outcomes representing the primary channel through which forex exposure affects analysts’ forecasts, we find that the effect of forex exposure is heightened in the presence of greater volatility in the U.S. Dollar. However, we also find that more readable annual reports and higher media coverage can help improve the quality of analysts’ forecast properties for firms with increasing forex exposure. We also present evidence of some benefits analysts can realize from coverage of high forex exposure firms through generating greater stock trading and securing positions in more prestigious brokerage firms.

History

Journal

Journal of Banking and Finance

Volume

146

Article number

106715

Pagination

1-18

Location

Amsterdam, The Netherlands

ISSN

0378-4266

eISSN

1872-6372

Language

English

Publication classification

C1 Refereed article in a scholarly journal

Publisher

Elsevier