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We examine the relation between government-funded research and development (R&D) and analyst forecast accuracy. Government-funded R&D data are hand-collected from the annual reports of U.S. firms. We document that firms with more government-funded R&D are associated with lower analyst forecast errors, especially when firms have had a long-term relationship with government, or for firms subject to greater information asymmetry and uncertainty. The main finding is confirmed by a quasi-natural experiment of changes in influential congressional committee chairmanships and two-stage regression analysis. Moreover, firms with more government-funded R&D tend to beat analyst earnings forecasts and are associated with better innovation performance.
JEL classification: G38; M41; O38.
Keywords: Forecast accuracy; Government-funded R&D; Firm performance; Innovation performance