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Le, Cao Hoang Anh; Shan, Yaowen; Taylor, Stephen
Pacific-Basin finance journal, June 2024, 2024-06-00, Volume: 85Journal Article
We investigate the extent to which international economic policy uncertainty (EPU) impacts analysts' earnings forecasts. Using a sample of Australian firms, we demonstrate that EPU is positively associated with the size of forecast errors and the extent of forecast dispersion. Consistent with Australia being a relatively small but open economy, we show that this EPU effect extends beyond domestic EPU to include global and country-specific EPU, most notably Chinese and US EPU. The effect of international EPU is stronger for short-term forecasts, and for firms with higher growth prospects and profitability. However, the effect of Australian EPU is more pronounced for longer horizon forecasts and for firms in the resources and mining industries, and those with lower growth and profitability. Our results are consistent with heightened international EPU negatively impacting firms' information environment, with increased variation in market participants' beliefs. •We examine the impact of economic policy uncertainty (EPU) on earnings forecasts for ASX firms.•EPU increases forecast errors and dispersion, including foreign EPU.•A stronger association is found in the mining industry and at longer forecast horizons.•Increased EPU correlates with a decline in firms' information quality.
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