Does environmental regulation affect analyst forecast bias? Evidence from China's Low-Carbon Pilot Policy

Abstract

This study investigates the impact of China's Low-Carbon Pilot Policy on analyst forecast behaviors. Using a staggered difference-in-difference approach, we find that the program reduced analyst forecast errors and divergence, as mandatory sustainability disclosures enable analysts to incorporate new information to improve forecast quality. The effect is concentrated in state-owned firms and manufacturing-oriented cities. Additional tests explore accounting information quality and investor attention as plausible channels. Overall, exploiting a major Chinese environmental regulation, we provide novel evidence that green policies can enhance transparency and capital market efficiency. The findings offer implications for regulators, investors, and managers as countries pursue climate change mitigation strategies.

Keywords: Accounting information quality; Analyst forecast; Environmental regulation; Financial market; Low-Carbon Pilot Policy.