Authors: Olga Chara Pavlopoulou, Leonidas Doukakis, Afroditi Papadaki

Title: The market informativeness of analyst forecasts in family firms

Abstract

Analyzing an international sample of listed firms during 2007-2019, this study is the first to examine the market informativeness of financial analyst news issued for family-owned corporations and offer evidence on whether family control affects the way the markets value public information. The empirical findings document that the incremental information contained in the analysts’ earnings news of family firms is priced by the market by at least 50% more than that of non-family firms with the pricing increasing further for family firms that have also issued management guidance for the reference fiscal period. Drawing from the agency and socioemotional wealth preservation theories, we propose that one primary driving factor of the increased value relevance of analyst news in family firms is the superiority of information contained in the management guidance issued by those firms. Disaggregating analyst news into management guidance and residual information components empirically supports this conjecture. As the financial analysts seem to under-react to the management guidance issued by family firms, particularly following negative guidance surprises, the increased pricing may also indicate that investors are aware of the superiority of forward-looking information contained in the management guidance of family firms and over-price their analyst news to correct the analyst under-reaction tendency.