Controlling Shareholders’ Equity Pledges and Properties of Analysts’ Earnings Forecasts

We adopt an information risk view and hypothesize that low quality financial disclosure related to equity pledging by controlling shareholders impairs analyst forecast quality. We sample Chinese A-share firms and find that the proportion of shares pledged (pledge ratio) by controlling shareholders and pledge ratios combined with margin call pressure are positively associated with analysts’ earnings forecast error and dispersion. Analysts’ incentives moderate the association between pledge ratios and forecast predictions. High performing analysts most sensitive to reputational concerns continue to report impairments in forecasting error/dispersion. Importantly, non-financial disclosures as proxied by CSR reporting improve analysts’ forecasts when the risk of equity pledging is high