Shilong Han, a researcher affiliated with the University of International Business and Economics in Beijing, has published a study examining the impact of high-speed rail (HSR) connectivity on capital market earnings forecast errors, using data from the Chinese stock market.
The study investigates how the expansion of China’s high-speed rail network has influenced the accuracy of analysts’ earnings forecasts. By analyzing firm-year panel data from 2008 to 2019, a period that encompasses the early introduction and rapid nationwide expansion of HSR, the research reveals that analysts’ relative earnings forecast errors (RFE) significantly decrease only after firms’ cities become connected by high-speed rail. This finding suggests that improved geographic accessibility, facilitated by HSR, plays a crucial role in enhancing forecast accuracy.
To ensure the robustness of these results, the study employs a placebo test, which artificially shifts HSR connectivity three years earlier than the actual opening year. The test yields an insignificant difference-in-differences (DID) coefficient, indicating that forecast errors were not improving before the infrastructure shock. This supports the conclusion that the reduction in forecast errors is directly linked to the real improvements in geographic accessibility provided by HSR, rather than coincidental trends or analyst anticipation.
From an economic perspective, the study highlights that HSR reduces the costs analysts incur when gathering private, incremental information, particularly soft information obtained through plant or management visits. While the rail network does not directly alter firms’ internal capital allocation or earnings generation processes, it lowers spatial barriers to information collection. This enables analysts to update their earnings per share (EPS) expectations more accurately under reduced travel friction.
The research provides intuitive evidence that geography and mobility improvements contribute to forecasting accuracy in China’s emerging, decentralized capital market corridors. It encourages future studies to consider transport accessibility as an exogenous information cost shock rather than an internal firm-capital shock. This work was published in the Journal of Corporate Finance.
This article is based on research available at arXiv.