Government Shareholdings in Brokerage Firms and Analyst Research Quality

60 Pages Posted: 14 Mar 2018 Last revised: 23 Nov 2022

See all articles by Sheng Cao

Sheng Cao

Anhui University of Finance and Economics

Xianjie He

Shanghai University of Finance and Economics - School of Accountancy

Charles C. Y. Wang

Harvard Business School (HBS)

Huifang Yin

Shanghai University of Finance and Economics

Date Written: November 22, 2022

Abstract

We examine how government ownership in brokerage firms influences analyst research quality in the Chinese context. When the government has strong incentives to prop up market prices, analysts from brokerages with significant government shareholdings ("government-brokerage analysts") issued relatively more optimistic earnings forecasts and revisions and more favorable stock recommendations; they were also slower to revise. Although these forecasts are also relatively less accurate, they influenced investors' beliefs. In other times and contexts, government-brokerage analysts produce relatively more neutral and timely research or relatively more accurate and less optimistic forecasts. Government-brokerage analysts thus balance maintaining market credibility against complying with government incentives. In doing so, government-brokerage analysts serve both market advisory and stabilization functions.

Keywords: Sell-side analysts; Forecast optimism; Forecast accuracy; Government ownership; Shareholders; Emerging markets; Coordinated economies

JEL Classification: G14; G24; G28; O16

Suggested Citation

Cao, Sheng and He, Xianjie and Wang, Charles C. Y. and Yin, Huifang, Government Shareholdings in Brokerage Firms and Analyst Research Quality (November 22, 2022). Harvard Business School Accounting & Management Unit Working Paper No. 18-095, Available at SSRN: https://ssrn.com/abstract=3140069 or http://dx.doi.org/10.2139/ssrn.3140069

Sheng Cao

Anhui University of Finance and Economics ( email )

962 Caoshan Road
Bengbu, Anhui 233030
China

Xianjie He

Shanghai University of Finance and Economics - School of Accountancy ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

Charles C. Y. Wang (Contact Author)

Harvard Business School (HBS) ( email )

Soldiers Field
Boston, MA 02163
United States

Huifang Yin

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
654
Abstract Views
4,026
rank
60,247
PlumX Metrics