Digital orientation and analyst recommendations: Evidence from China

Because of information asymmetry in the capital market, analysts find it difficult to obtain accurate internal information of the enterprise and usually only rely on signals conveyed by firms to predict firms' value and future development trends. Previous researchers have focused more on the impact of signals about quality on analyst recommendations and ignored the impact of signals about intent. Based on signaling theory, we study how digital orientation, a typical signal about intent in the digital economy era, affects analyst recommendations; we also explore how three dimensions: dynamism, complexity, and munificence from a signaling environment perspective affect the signaling process. Using a mixed-methods approach and in the unique context of the Chinese digital economy, we find that the digital orientation can increase the analyst recommendations. Industrial uncertainty and industrial digital heterogeneity both strengthen the positive effect of digital orientation on analyst recommendations. On the contrary, industrial growth weakens the positive effect of digital orientation on analyst recommendations. This study provides new insights for understanding the transmission of firm signals about intent and the evaluation of external stakeholders in the era of the digital economy.