Forecast Bias and Analyst Independence

Phillip J. McKnight and Steven K. Todd

International Journal of Economics & Business Administration (IJEBA), 2013, vol. I, issue 2, 3-32

Abstract: This paper examines the accuracy of equity analysts who provide earnings forecasts for European companies. We find strong evidence of institutional bias in analysts’ forecasts, specifically, when analysts move between sell-side employers and independent employers, they issue more accurate forecasts while they are employed by independent firms. Moreover, these differences persist when we hold constant the set of firms these mobile analysts research. We find statistically significant differences in the forecast accuracy of sell-side and independent analysts. The optimistic bias of sell-side analysts appears to be related to underwriting activity. Analysts employed by lead underwriters produce less accurate forecasts for newly public companies than do either buy-side or independent analysts. The optimistic bias persists for a five-year period following an IPO.

Keywords: Analysts; Forecasts; Bias; Sell-side; Buy-side; Independent (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:ers:ijebaa:v:i:y:2013:i:2:p:3-32

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