Analysts' Conflict of Interest and Biases in Earnings Forecasts

Louis K. C. Chan, Jason Karceski and Josef Lakonishok

No 9544, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Analysts' earnings forecasts are influenced by their desire to win investment banking clients. We hypothesize that the equity bull market of the 1990s, along with the boom in investment banking business, exacerbated analysts' conflict of interest and their incentives to adjust strategically forecasts to avoid earnings disappointments. We document shifts in the distribution of earnings surprises, the market's response to surprises and forecast revisions, and in the predictability of non-negative surprises. Further confirmation is based on subsamples where conflicts of interest are more pronounced, including growth stocks and stocks with consecutive non-negative surprises; however shifts are less notable in international markets.

JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2003-03
New Economics Papers: this item is included in nep-cfn
Note: AP
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Citations: View citations in EconPapers (7)

Published as Louis K. C. Chan & Jason Karceski & Josef Lakonishok, 2007. "Analysts' Conflicts of Interest and Biases in Earnings Forecasts," Journal of Financial and Quantitative Analysis, vol 42(04).

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