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    Low-Carbon City Initiatives and Analyst Behaviour: A Quasi-Natural Experiment

    Access Status
    Fulltext not available
    Authors
    Cao, June
    Li, W.
    Bilokha, A.
    Date
    2022
    Type
    Journal Article
    
    Metadata
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    Citation
    Cao, J. and Li, W. and Bilokha, A. 2022. Low-Carbon City Initiatives and Analyst Behaviour: A Quasi-Natural Experiment. Journal of Financial Stability. 62: 101042.
    Source Title
    Journal of Financial Stability
    DOI
    10.1016/j.jfs.2022.101042
    Faculty
    Faculty of Business and Law
    School
    School of Accounting, Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/88981
    Collection
    • Curtin Research Publications
    Abstract

    This paper investigates how environmental regulation and action affect analyst behaviour. Exploiting staggered enactment of low carbon city (LCC) initiatives in a difference-in-differences (DiD) setting, we observe that analyst forecast accuracy (dispersion) is significantly lower (greater) for client firms headquartered in cities covered by the LCC pilot programme, especially among firms with a low-quality information environment. The LCC effort affects analyst behaviour via increased firm risk and reduced earnings predictability, causing enhanced site visits and coverage. The results are stronger in cities with more rigorous enforcement and regulation intensity, for private firms with high business complexity and in heavily polluting industries. Results are robust to DiD models with entropy balancing matching, placebo tests, parallel trend tests, and a battery of fixed effects. Collectively, they reveal that environmental regulation has real impacts on analyst forecast behaviour.

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