 Accurate forecasts attract clients; Biased forecasts keep them happyChao Zhang, David G. Shrider, Dun Han and Yanran Wu International Review of Financial Analysis, 2022, vol. 81, issue C Abstract: We examine whether business relationships between mutual funds and sell-side analysts influence earnings forecasts using Chinese data from 2007 to 2019. Consistent with prior studies, our results support the commission pressure hypothesis. Analysts' forecasts are overly optimistic for the holdings of existing fund clients. Significantly, we propose the potential client hypothesis and show that analysts' forecasts are more accurate for the holdings of funds that are not clients than for holdings of clients or for stocks not held by any fund. Our results suggest that commission pressure from existing fund clients increases analysts' optimistic bias, while potential clients pressure inhibits analysts' optimistic bias to some extent. Finally, our evidence supports the conflicts of interest hypothesis. Commission pressure is reduced as economic uncertainty grows. Keywords: Commission relationship; Potential client pressure; Economic uncertainty; Analysts' forecast bias; Mutual funds (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:finana:v:81:y:2022:i:c:s1057521922000424 DOI: 10.1016/j.irfa.2022.102067 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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