Cost stickiness, earnings forecast accuracy, and the informativeness of stock prices about future earnings: evidence from China

This paper investigates the relationship between cost stickiness, earnings forecast accuracy, and stock price information content using data from the Chinese capital market. The findings reveal that lower cost stickiness enhances the ability of current returns to reflect future earnings, leading to a higher future earnings response coefficient (FERC). Cost stickiness disproportionately impacts non-state-owned enterprises, reducing their FERC, while having a negligible effect on state-owned enterprises. This suggests differing investor attitudes towards cost stickiness based on ownership structure. Furthermore, cost stickiness increases stock price synchronicity and reduces the reflection of company-specific information in stock prices. The study establishes earnings forecast accuracy as a mediating mechanism through which cost stickiness influences FERC and stock price synchronicity. The research contributes to the literature on cost stickiness, earnings response coefficients, and capital market information efficiency.

Jia Li, Zhoutianyang Sun