Using the introduction of high-speed rail (HSR) as an exogenous shock to costs of information acquisition, we show reductions in information-acquisition costs lead to (i) a significant increase in information production, evidenced by a higher frequency of analysts visiting portfolio firms and (ii) improvement in output quality, manifested in higher forecast accuracy and better recommendations. The effect is more pronounced for firms with information that is difficult to produce. Importantly, more information production is also associated with improved price efficiency. We corroborate these findings using a large-scale survey of financial analysts. Finally, both the empirical and survey results highlight the importance of soft information in analysts’ unique-information production.

This paper constructs a manager sentiment index based on the aggregated textual tone of corporate financial disclosures. We find that manager sentiment is a strong negative predictor of future aggregate stock market returns, with monthly in-sample and out-of-sample R2s of 9.75% and 8.38%, respectively, which is far greater than the predictive power of other previously studied macroeconomic variables. Its predictive power is economically comparable and is informationally complementary to existing measures of investor sentiment. Higher manager sentiment precedes lower aggregate earnings surprises and greater aggregate investment growth. Moreover, manager sentiment negatively predicts cross-sectional stock returns, particularly for firms that are difficult to value and costly to arbitrage.