Beyond borders: the value of U.S. Firms’ offshore activities to foreign analysts

We find that non-U.S. analysts are more likely to cover U.S. firms with offshore operations in their domiciled countries than those without. Additionally, earnings forecast accuracy improves as U.S. firms sell more goods and products in the analysts’ domiciled country. Consistent with the investor demand hypothesis, U.S. firms’ offshore operations are positively related to both investors’ search volume of the firm’s EDGAR filings and institutional equity holdings from the foreign countries. Supporting the idea that foreign analysts possess an informational advantage in assessing offshore activities of U.S. firms operating in their home markets, we find that only offshore operations with a physical presence enhance local foreign analysts’ coverage and their earnings forecast accuracy. The impact of offshore operations is stronger for analysts based in countries with greater travel frictions, more social network-oriented cultures, and accounting standards that differ more substantially from those of the U.S. Our study highlights that offshore activity can offer an information advantage to a group of foreign analysts due to the local presence of U.S. firms through their geographic proximity, social and business networks.