 Affiliated block shareholders and analyst optimismShi Li, Chaopeng Wu and Shijie Yang The North American Journal of Economics and Finance, 2021, vol. 55, issue C Abstract: We investigate several previously under-documented conflicts of interest that may result in analyst optimism by utilizing two unique features of brokerage firms in China, namely, the dominant ownership of large shareholders within the brokerage firms and the mandatory disclosure of brokerage firms’ commission income derived from each mutual fund client. We show that controlling shareholders of an analyst’s brokerage-firm put pressure on the analyst to report more optimistically biased earnings forecasts and recommendations to the stocks they hold larger positions in. We also find that the magnitude of analyst optimism increases with the shareholdings of the mutual funds that contribute commission fees to the analyst’s brokerage firm. These findings remain robust after incorporating a regulation change that reduces conflicts of interest in the brokerage industry and higher dimensional fixed effects, and thus are unlikely to be driven by reverse causality or omitted variable bias. Keywords: Sell-side analyst optimism; Conflicts of interest; Block shareholder; Affiliated mutual fund; Earnings forecast bias; Stock recommendations (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:55:y:2021:i:c:s1062940818306491 DOI: 10.1016/j.najef.2019.101135 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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