This paper examines how foreign joint venture brokerages in China decide on their strategies when facing with two entry barriers: (1) ownership restriction barrier that discourages foreign partners from sharing superior technical capabilities with domestic partners, and (2) institutional barrier that prevents the joint ventures from incorporating politically sensitive information in their forecasts. By comparing the foreign joint venture and domestic brokerages’ analyst reports for the same firm in the same year, we find that foreign brokerages incorporate significantly more technical capabilities into their reports and the technical capabilities contribute significantly more to their forecast accuracy than those of domestic brokerages. Our evidence also shows that there is more political content in domestic brokerages’ reports and their political content contributes more significantly to their forecast accuracy. This suggests that the joint ventures are using foreign partners’ superior technical capabilities as a competitive strategy. However, even with the help of domestic partners, the joint ventures cannot compete with domestic brokerages on the strategy of utilizing political information for forecasting due to the institutional barrier.

Visible and Invisible Barriers: Evidence from Foreign Joint Venture and Domestic Brokerage Financial Analysts in China.

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