Do Business Relationships Affect the Accuracy of Analyst Earnings Forecasts? Evidence from China1. (6th February 2017)

• Record Type: Journal Article
• Authors: Wang, Shengnian; Wei, Chunyan; Han, Liang
• Is Part Of: Asia-Pacific journal of financial studies. Volume 46:Number 1(2017:Feb.)
• Page Start: 155
• Page End: 177
• Publication Date: 2017-02-06
• Subjects: Financial analyst -- Investment banking relationship -- Forecast bias -- Reputation -- Legal environment; Pacific Area -- Economic conditions -- Periodicals; Finance -- Asia -- Periodicals; Finance -- Pacific Area -- Periodicals; Asia -- Economic conditions -- Periodicals; 332.09505
• DOI: 10.1111/ajfs.12164
• Languages: English
• ISSNs: 2041-9945

Abstract

Abstract: Supporting the "conflicts of interest hypothesis, " we show that, in China, better‐informed analysts issue more optimistically biased forecasts and the reputation of financial analysts mitigates the bias. We contribute to the literature by showing that such an adverse information effect varies over types of investment banking relationships and a better developed local legal environment reduces forecast bias. Our results call for a better developed market mechanism to discipline analysts so as to issue independent and accurate earnings forecasts in China.