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Analysts' Conflict of Interest and Biases in Earnings ForecastsLouis K.C. ChanUniversity of Illinois at Urbana-Champaign - Department of Finance Jason J. KarceskiUniversity of Florida - Department of Finance, Insurance and Real Estate Josef LakonishokUniversity of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER) March 2003 NBER Working Paper No. w9544 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.
Number of Pages in PDF File: 48 working papers seriesDate posted: March 8, 2003Suggested CitationContact Information
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