U.S. Analyst Regulation and the Earnings Forecast Bias Around the World

Abstract:     
We examine the spillover effects of the Global Analyst Research Settlement on analysts’ earnings forecasts in forty developed and emerging markets. Prior to the Global Settlement, analysts around the world generally make overly optimistic forecasts. The forecast bias tends to be higher in countries with less investor protection. The forecast bias declines and practically disappears after the Global Settlement. This spillover effect is stronger for countries with lower investor protection. The spillover effect is also stronger for countries with more significant presence by the analysts of the twelve banks directly involved in the Global Settlement.

Keywords: analyst regulation, investor protection, cross-country spillover, analyst forecast bias, analyst conflicts of interest

JEL Classifications: G15, G24, G28, G29, G38

Working Paper Series