The effect of the European Markets in Financial Instruments Directive on affiliated analysts’ earnings forecast optimism

Jörg Prokop and Benno Kammann

Journal of Economics and Business, 2018, vol. 95, issue C, 75-86

Abstract: We investigate the effects of the European Markets in Financial Instruments Directive (MiFID) on optimism in financial analysts’ earnings forecasts for Euro Area firms. We find that before MiFID came into force affiliated analysts – that is, analysts with closer business ties to the firms they follow – issued more optimistic longer-term earnings forecasts than their more independent peers. At the same time their short-run forecasts were significantly less optimistic which is consistent with the notion of downward management of their earnings forecasts to avoid negative earnings surprises. Since the adoption of MiFID, these differences in short-term and longer-term forecasts by affiliated and non-affiliated analysts have been eliminated indicating that with respect to affiliated financial analysts’ earnings estimates MiFID has been successful in mitigating conflicts of interest.

Keywords: Conflicts of interest; Equity; Optimism; Regulation; Security analyst (search for similar items in EconPapers)
JEL-codes: G12 G14 G24 G28 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0148619517301534
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:95:y:2018:i:c:p:75-86

DOI: 10.1016/j.jeconbus.2017.06.004

Access Statistics for this article

Journal of Economics and Business is currently edited by Emanuele Bajo and Moritz Ritter

More articles in Journal of Economics and Business from Elsevier
Bibliographic data for series maintained by Catherine Liu ().