Mergers and acquisitions comment letters and analysts' ' earnings forecasts: Evidence from China

In this study we examine the effect of the mergers and acquisitions (M&A) comment letters on the analysts' earnings forecasts in China. Using the M&A data of listed companies between 2014 and 2018 as the main sample, we show that the M&A comment letters can reduce analysts' earnings forecast optimism. Additionally, the impact of the M&A comment letters on analysts' earnings forecast optimism is more pronounced in firms with higher market sentiment and higher conflicts of interest. Finally, the textual characteristics of the M&A comment letters and the classification of questions in the M&A comment letters also influence analysts' earnings forecast optimism. Our research broadens the economic consequences of the M&A comment letters and provides a richer theoretical perspective and empirical evidence to understand the effectiveness of non-penalty regulation.