Political Contributions and Analyst Behavior
University of Miami - School of Business Administration
Florida State University - The College of Business
March 31, 2015
McCombs Research Paper Series No. FIN-01-12
We show that political preferences of analysts, as revealed by their personal political contributions, are correlated with their forecasting styles and influence the information dissemination process. Politically conservative analysts, defined as those who contribute primarily to the Republican Party, exhibit more conservative forecasting styles. Their earnings forecast revisions are less likely to deviate from other analysts and less likely to be bold. Their stock recommendations also contain more modest upgrades and downgrades. Further, these politically conservative analysts produce higher quality research, which is recognized and rewarded by their employers, institutional investors, and news media. Despite their superior research quality, the market reaction following revisions by these analysts is weaker. Taken together, our findings suggest that personal traits of analysts influence their forecasting behavior, whose implications for stock prices, however, are not fully appreciated by market participants.
Number of Pages in PDF File: 68
Keywords: Political Contribution, Politically Conservative Analyst, Forecasting Style, Market Reaction
JEL Classification: G14, G24, M41
Date posted: October 3, 2010 ; Last revised: April 1, 2015
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