Financial analysts from cultures that value long-term thinking issue more, and more accurate, long-term focused forecasts, new research from Bayes Business School suggests.
A study co-authored by Jay Jung, senior lecturer in accounting at the academic institution, also found that such analysts ask more longer-term focused questions during conference calls, eliciting greater longer-term disclosures from corporate managers.
They are also more likely to use discounted valuation models that explicitly incorporate expectations about firms’ long-term prospects.
Jung said the impact of inherited cultural attitudes around long-term thinking had been underappreciated in financial markets.
“A lot of people think that financial analysts only focus on this quarter’s profit, this year’s profit, but there are small groups of financial analysts who subconsciously, unconsciously focus on longer-term goals, longer-term prospects,” he told IPE.
The study was conducted by tracing the ancestral countries of origin for about 3,800 US analysts based on their surnames and linking country-level cultural data for long-term orientation (LTO) to them.
The LTO data that was used comes from what is known as Hofstede’s cultural index, which Jung told IPE was widely validated and used as a norm in multiple domains.
The countries with the highest LTO scores are: South Korea (100), Taiwan (93), Japan (88), China (87), Ukraine (86), and Germany (83). By contrast, the UK score is 51 and the US 26.
The study found that the influence of inherited culture was strongest for early-generation immigrants.
Powerful for intangibles
The analysts’ outperformance was most pronounced when they were analysing firms with more volatile sales or asset bases, growth firms with low book-to-market ratios, and firms with greater reliance on intangible assets, such as brands, patents, or technology.
Jung also said that, at a time when diversity, equity, and inclusion programmes are increasingly under attack, the study’s findings highlight the economic value of employing and supporting a culturally diverse workforce.
“We live in an age of falling attention spans, where stocks and other assets can be bought and sold in minutes, 24 hours a day,” he said.
“These cultural and technological changes reinforce, or in some cases magnify, a focus on the short-term. Our findings underline the enduring value of long-term thinking.”
The paper was recently accepted for publication in the leading academic journal Contemporary Accounting Research.
